2017 was a great year for defense stocks, some of them rising as much as 30% by the end of December. The rally was fueled mainly by the heated exchange between the United States and North Korea, as well as President Trump’s plans to refresh a number of weapons systems currently employed by the US army. Although the tensions between US and North Korea have cooled down a bit, the US government’s pledge to spend more on defense could sustain a prolonged rally in shares of defense contractors. In his first State of the Union address, President Trump has reiterated his support for the military. “In confronting these dangers, we know that weakness is the surest path to conflict, and unmatched power is the surest means of our defense. For this reason, I am asking the Congress to end the dangerous defense sequester and fully fund our great military,” Trump said.
At Insider Monkey, whenever we analyze a stock, we like to take into consideration the actions of billionaire fund managers. So, let’s see which are the top 6 defense stocks that billionaires are betting on.
First up is Leidos Holdings, Inc. (NYSE:LDOS), a provider of technology and engineering solutions in the defense, intelligence and other markets. At the end of the 2017 third quarter, 6 of the billionaires followed by Insider Monkey were holding the stock in their equity portfolios, up from 4 registered a quarter before. Ken Griffin led the way, with his fund, Citadel Investment Group, having reported ownership of 1.18 million Leidos shares in its latest 13F filing. Jim Simons’ Renaissance Technologies was also betting big on Leidos Holdings, Inc. (NYSE:LDOS), as the fund’s stake was boosted by 21% to 1.04 million shares by the end of September.
In the beginning of January, Leidos Holdings, Inc. (NYSE:LDOS) was awarded a $47 million contract by the Air Force Research Laboratory to provide sensor technology for the EO-CHIL program. Later on, Leidos announced it would compete for work under a $250 million multiple-award, blanket purchase agreement offered by the General Services Administration for the provision of information technology, operation and maintenance services. Leidos is one of the seven companies eligible to compete for tasks under this program.
Ken Griffin’s Citadel Investment Group was also very bullish on Textron Inc. (NYSE:TXT), as it doubled its holding of the stock during the third quarter, amassing 2.77 million shares. Billionaire Mario Gabelli’s GAMCO Investors also held a sizable position in Textron, having reported ownership of 2.15 million shares in its latest quarterly filing. Overall, 7 billionaire fund managers were invested in Textron Inc. (NYSE:TXT) at the end of the 2017 third quarter.
Morgan Stanley has recently upgraded Textron Inc. (NYSE:TXT) from Underweight to Equal-weight and has increased its price target form $55 to $60. This comes despite the fact that Textron’s recent financial report was rather disappointing. The company reported a fourth-quarter adjusted earnings of $0.74 per share on the back of $4.02 billion in revenue, missing Wall Street’s forecasts of $4.04 billion in revenue and $0.77 in earnings per share. Textron also issued bleak forward guidance, estimating 2018 full-year earnings to range between $2.95 and $3.15 per share and $14.6 billion in revenue.
On par with Textron is Rockwell Collins, Inc. (NYSE:COL), the provider of communications and aviation systems. According to Insider Monkey’s billionaire database, Rockwell Collins could be found in the portfolios of 7 elite fund managers at the end of September, up from just 2 a quarter before. Ken Griffin’s Citadel Investment Group is leading the way again, having indicated ownership of 809,062 shares of Rockwell Collins in its latest 13F filing. Billionaire James Dinan was optimistic about the prospects of Rockwell Collins, Inc. (NYSE:COL) with his fund, York Capital Management, having reported a fresh stake in the company that amounted to 761,664 shares.
Rockwell Collins, Inc. (NYSE:COL) is currently the subject of takeover efforts by United Technologies Corporation (NYSE:UTX). Back in September 2017, United Technologies agreed to acquire Rockwell Collins for $30 billion or $140 per share in a cash and stock deal. With Rockwell Collins currently trading around the $135 level, there could be some potential for merger arbitrage.
Next up is General Dynamics Corporation (NYSE:GD), which, at the end of September, could be found in the portfolios of 8 billionaire fund managers. Jim Simons’ Renaissance Technologies was leading the pack, having reported ownership of 320,917 shares in its latest 13F filing. Not far behind was billionaire David Harding. His fund, Winton Capital Management, reportedly held 270,946 shares of General Dynamics Corporation (NYSE:GD) at the end of September.
Although General Dynamics Corporation (NYSE:GD) was betting on a substantial increase in revenue after the US government pledged to increase military spending, results failed to materialize in 2017. The company’s management is still upbeat and believes the windfall of revenue has only been delayed. General Dynamics is looking to generate sales between $32.35 billion and $32.45 billion in 2018, which would imply an increase of 4.4% to 4.8% compared to 2017.
Elite fund managers were very bullish on Spirit AeroSystems Holdings, Inc. (NYSE:SPR) as well. David E Shaw’s fund, D E Shaw, boosted its stake in the company by 17% to 3.05 million shares, while Israel Englander’s Millennium Management reported a massive 284% increase in its latest 13F filing. The fund reportedly held 1.29 million shares of Spirit AeroSystems at the end of the third quarter. Overall, Spirit AeroSystems Holdings, Inc. (NYSE:SPR) registered a boost in popularity among billionaire fund managers, with 9 of them holding the stock at the end of September, up from 6 a quarter before.
Spirit AeroSystems Holdings, Inc. (NYSE:SPR) has recently reported fourth-quarter financial results that exceeded market’s expectations. The company reported adjusted earnings of $1.32 per share and $1.71 billion in revenue, ahead of analysts’ forecasts of $1.22 per share on the back of $1.65 billion in revenue. Market participants were not impressed by the company’s forward guidance, though, which sent the shares tumbling.
Billionaire Mason Hawkins is betting big on United Technologies Corporation (NYSE:UTX), which accounted for 6.77% of Southeastern Asset Management’s portfolio at the end of September. In its latest 13F filing, the fund reported ownership of 4.85 million shares of United Technologies. Andreas Halvorsen’s Viking Global initiated a fresh bet on United Technologies Corporation (NYSE:UTX), having acquired 4.18 million shares by the end of the third quarter. In general, 10 of the billionaire fund managers we follow were invested in this stock at the end of September, unchanged from the previous quarter.
United Technologies Corporation (NYSE:UTX) is one of the major industrial companies that will benefit a lot from the new tax system. Up until now the company had been repatriating approximately $1 billion in funds from overseas, but with the new tax rates in place, it plans to increase that amount to roughly $3 billion. United Technologies plans to use these funds mainly for the repayment of the debt related to the acquisition of Rockwell Collins.
Disclosure: none.
