In this article, we will look at the 10 Worst Aerospace Stocks To Buy According to Short Sellers. Let’s look at where Spirit Aerosystems Holdings, Inc. (SPR) stands against other aerospace stocks.
The world is in a constant state of turmoil. Geopolitical tensions are escalating, leading to full-blown wars in certain world regions. While such tensions are dealbreakers for several industries, the aerospace and defense sector runs on a different model. Ironically, increasing geopolitical tensions are one of the most positive signs of profitability for these companies.
One of the critical drivers of revenue for such companies is government contracts for military-grade weapons, aircraft, and defense systems. The increased risk of war boosts defense spending, landing aerospace and defense companies more contracts. With defense stocks soaring after Iran’s recent missile attacks on Israel, investors are wondering if this is an overreaction to the ongoing conflict.
Scott Ladner, Chief Investment Officer at Horizon Investments, joined CNBC on October 2nd to discuss tensions in the Middle East and defense stocks. He sees potential in small caps and cyclical sectors if the economy cools. He said that although investors shouldn’t do anything in terms of the port strike stuff, it was too early to predict things related to the conflict in the Middle East.
The market tends to look through it very well when we look at the conflicts that have arisen in the region in the past. However, since Iran’s recent missile attacks on Israel seem more serious, the situation needs to be watched carefully. Despite that, Ladner says that he is optimistic at the present and believes they will find a way through the situation.
He is also of the view that the world is not getting any safer, with more money being put aside for defense. Apart from the situation in the Middle East, special threats from China and Taiwan, although not an urgent concern, also require careful attention. These circumstances make investing in defense stocks a reasonable choice in the present.
Sheila Kahyaoglu, a Jefferies defense analyst, joined CNBC’s ‘The Exchange’ on October 1 and said that the base case for US defense spending is in the 3-5% range. She also said that certain stocks in the defense sector have a potentially high revenue upside due to the events unfolding across the world.
Growth in Aircraft Orders
While sharing his insights on commercial aviation at the Morningstar Investment Conference in Chicago on June 26, Tony Bancroft from Gabelli Funds said he had noticed significant growth in aircraft orders, with both Boeing and Airbus holding a 12-year backlog of orders. He listed three reasons for this growth. The first catalyst, according to his perception, was China. China accounts for around 20% of the growth in orders to cater to the growing middle class in both India and China. This middle class has an increased inclination for travel.
Secondly, business travel has bounced back to pre-pandemic levels of 2019, marking another critical factor for this growth. Bancroft highlighted the rising middle class in the US and the world to be the third factor. This middle class is growing air travel and contributing positively to economic growth in the industry.
Trends in the Aerospace and Defense Industry
The aerospace and defense (A&D) industry experienced a revival in product demand in 2023. According to a report by Deloitte, domestic commercial aviation revenue passenger kilometers in the aerospace sector exceeded prepandemic levels in most countries. The increase in air travel has prompted an increased demand for new aircraft and aftermarket services and products across the globe.
The demand for weapons and next-generation capabilities in the US defense sector drove solid demand in 2023, primarily due to the ongoing geopolitical conditions and the prioritization of modernizing the military. This growing demand for A&D products is expected to continue throughout 2024.
Our Methodology
To list the 10 Worst Aerospace Stocks To Buy According to Short Sellers, we used the Finviz screener, ETFs, and rankings to first identify 30 Aerospace stocks. Next, we narrowed our list by selecting the 10 stocks that have high short interest but also a high number of hedge fund investors. Finally, these stocks were ranked in ascending order of their short interest. We have also added the number of hedge funds holding each stock as a secondary metric.
Why are we interested in 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).
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Spirit Aerosystems Holdings, Inc. (NYSE:SPR)
Short % of Float: 8.71%
Number of Hedge Fund Holders: 32
Spirit AeroSystems (NYSE:SPR) is a non-original equipment manufacturer (OEM) manufacturer of aerostructures that serves markets for commercial airplanes, business/regional jets, and military platforms. Its operations are divided into three segments: Commercial, Defense & Space, and Aftermarket. Its Commercial segment includes the design and manufacturing of forward, mid, and rear fuselage sections and systems, nacelles, struts, and related engine and structural components.
It also covers miscellaneous structural parts. The Defense & Space segment includes the design and manufacturing of structural parts primarily for the United States government defense programs. The Aftermarket segment, in contrast, includes the design, marketing, and manufacturing of spare parts, along with offering maintenance, repair, and overhaul services.
The company is redefining its transformation strategy to offer low-fare and high-value travel options that allow guests to experience an elevated experience at affordable prices. It believes this plan will be its path to profitability. As part of this transformation, it is offering four travel options that offer extra flexibility without change or cancellation fees. These options include Go Comfy, Go Big, Go Savvy, and Go.
While it is focusing on offering guests a quality low-fare experience, Spirit Aerosystems (NYSE:SPR) will also offer a premium leisure experience with more space, flexibility, and amenities to its customers. It is also debuting other travel-enhancing options, including designated priority check-in and a new boarding process. These offerings will prioritize the company’s Go Big guests, Free Spirit World Elite MasterCard holders, Free Spirit Gold and Silver members, and Active-duty US Service members.
Overall, the company is focusing on refinancing its debt, deploying its new re-imagined products into the market, improving its overall liquidity position, and growing its loyalty programs. It ranks fourth on our list of the 10 worst aerospace stocks to buy according to short sellers.
Overall, SPR ranks 4th among the 10 worst aerospace stocks to buy now according to short sellers. While we acknowledge the potential of SPR 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 SPR 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.
