We recently compiled a list of the 10 Best American Defense Stocks To Buy According to Hedge Funds. In this article, we are going to take a look at where General Dynamics Corporation (NYSE:GD) stands against the other American defense stocks.
“Geopolitics can be expected to drive increased defense spending in the years ahead, creating solid investment opportunities,” said Steve Barry, global head of fundamental equity at Goldman Sachs Asset Management, in a midyear outlook report. Around two and a half years ago, the global landscape shifted dramatically due to Russia’s full-scale invasion of Ukraine. This invasion heightened geopolitical tensions and pushed NATO and European nations to reevaluate their security policies after years of relative complacency, recognizing the looming threat on their borders. In October of last year, another pivotal event occurred when Hamas attacked an Israeli music and arts festival, sparking a powerful military response from Israel in the Gaza Strip. These events have further solidified the focus on national security, making it a central issue in political discussions worldwide.
It’s well known that investing in defense contractors tends to pay off when geopolitical tensions rise, but Wall Street sees more driving the latest rally. The recent surge in shares of weapons and aircraft manufacturers, fueled by escalating conflicts in the Middle East, is just part of the story. Analysts point to several other factors poised to push these stocks even higher. These include the Federal Reserve’s easing cycle, the prospect of lucrative contracts for aerospace firms as airlines update their fleets, and the sector’s relatively low exposure to risk from the upcoming U.S. presidential election. While the election outcome remains uncertain, one thing appears likely: regardless of who wins, military spending in the U.S. is poised to increase in 2025 and beyond. Both the Biden-Harris administration and current lawmakers have already demonstrated their willingness to boost defense budgets, with the Senate and House having approved an increase in the 2025 Pentagon budget, which includes additional funding for the F-35 fighter jet program.
On an October 1 episode of CNBC’s The Exchange, Sheila Kahyaoglu, a defense analyst at Jefferies, discussed the impact of Iran’s missile strikes on defense stocks, while also examining U.S. defense spending in the context of ongoing global conflicts, highlighting how these developments could influence the defense sector:
“Investors have been positioned very bullishly, given what the S&P has been doing, making all-time highs several times this year. So, we’re seeing that rotation reversal into the defense names like the Boeings of the world, which have a little bit more data. In terms of the defense budget though, what we’re seeing is a continuing revolution running through fiscal 2025 that starts today. So basically, we’re seeing the can kicked down the road until after the election. Our base case for that, including inflation, is about 3% growth.”
See also: 8 Best Drone Stocks to Buy Now.
In another vein, the space sector is emerging as a vital component of the defense industry’s future. U.S. spending on space-related defense initiatives has surged, with the U.S. Space Force (USSF) requesting $30.1 billion for fiscal year 2024—a 15% increase from the prior year. This upward trend is expected to persist into 2025 and beyond. As the largest user of satellite services in the military, the U.S. Army depends heavily on space-based assets for essential functions such as communication, navigation, weather forecasting, and early missile launch detection.
Our Methodology
To compile our list of the best American defense stocks, we started by identifying the largest companies in the defense sector. Next, we analyzed hedge fund sentiment for these firms using Insider Monkey’s proprietary database, which tracks 912 elite money managers. We then focused on the stocks that were most widely held by hedge funds and ranked them in ascending order based on the number of hedge fund holders as of Q2 2024.
At Insider Monkey we are obsessed with the stocks that hedge funds pile into. The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
An aircraft maintenance team in a hanger working on a modern business jet.
General Dynamics Corporation (NYSE:GD)
Number of Hedge Fund Holders: 48
General Dynamics Corporation (NYSE:GD) is a global leader in aerospace and defense, renowned for delivering innovative solutions across sectors like nuclear-powered submarines, land combat systems, and advanced IT services.
On October 25, RBC Capital Markets raised its price target for General Dynamics Corporation (NYSE:GD) from $320 to $330, maintaining an Outperform rating. The adjustment came after the defense company posted Q3 earnings of $3.35 per share, beating RBC’s estimate of $3.27 but missing the broader market consensus due to lower-than-expected G700 aircraft deliveries. Total revenue for the quarter rose 10%, driven by strong performance in the Aerospace and Marine divisions. The Aerospace segment was notably strong, which RBC sees as a key area for potential margin expansion.
Moreover, General Dynamics Corporation (NYSE:GD) also managed to secure key contracts in September of this year, including $299 million for Pentagon network infrastructure upgrades and $491.6 million from the Space Development Agency.
Looking ahead, General Dynamics Corporation (NYSE:GD) expects a robust fourth quarter and forecasts full-year revenue of approximately $48 billion, with Aerospace sales projected at $12.3 billion and Marine Systems at $13.9 billion.
Overall GD ranks 6th on our list of the best American defense stocks to buy according to hedge funds. While we acknowledge the potential of GD as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than GD but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.