We recently published a list of 7 Most Undervalued Defense Stocks To Buy According To Analysts. In this article, we are going to take a look at where Sturm, Ruger & Company, Inc. (NYSE:RGR) stands against the other most undervalued defense stocks to buy according to analysts.
As we approach 2025 and beyond, the defense industry finds itself at a pivotal moment, characterized by a convergence of technological breakthroughs, shifting geopolitical landscapes, and heightened spending from both public and private sectors. This unique environment is set to shape the future of aerospace and defense (A&D), presenting significant growth opportunities for firms that are strategically positioned and innovative. In this article, we will delve into the most undervalued stocks to buy in the defense sector.
Deloitte highlights a significant evolution in the defense sector driven by the emergence of supersonic and hypersonic technologies. At the forefront of this transformation is NASA’s X-59 QueSST program, which aims to minimize sonic boom intensity, redefining high-speed aviation. While still in its early stages, manufacturers are optimistic, evidenced by substantial investments and partnerships with major airlines. This optimism suggests that supersonic travel could evolve into a viable economic solution rather than merely a technological novelty.
In addition to supersonic advancements, hypersonic technology is gaining momentum within the defense sector, driven by various offensive and defensive needs. The U.S. Department of Defense (DOD) has dedicated significant resources in its fiscal year 2024 budget to develop hypersonic capabilities, including glide vehicles and cruise missiles. As these technologies approach operational readiness, defense firms are likely to expedite the development of hypersonic weapon systems, potentially boosting sector growth in the coming years.
The aerospace and defense (A&D) industry is expected to grow as a result of combined defense and commercial spending. With geopolitical tensions escalating, the demand for next-generation defense capabilities is reaching unprecedented heights. The global defense budget surpassed $2.24 trillion in 2022, and the DOD has requested $842 billion for fiscal year 2024, reflecting a 3.2% increase from the previous year. This funding surge is anticipated to stimulate innovation in critical areas such as artificial intelligence (AI), advanced technologies, and the modernization of military vehicles.
Investors should focus on companies within the defense supply chain, particularly those involved in research and development of cutting-edge defense technologies. The DOD’s focus on AI, microelectronics, quantum computing, and advanced propulsion systems is set to spur rapid advancements. By concentrating on these areas, defense companies can maintain a competitive edge, offering numerous opportunities for investors looking to tap into the sector’s growth potential.
Moreover, the space sector is becoming an increasingly vital aspect of the A&D industry’s future. U.S. investment in space-related defense initiatives has significantly increased, with the U.S. Space Force (USSF) requesting $30.1 billion for fiscal year 2024—a 15% rise from the previous year. This trend is expected to persist into 2025 and beyond as the U.S. seeks to secure its strategic advantage in space, with investments in cybersecurity and resilient space forces remaining critical for sustainable growth.
Despite the promising outlook for the defense industry, challenges such as inflation could present obstacles. Rising material and production costs may offset the DOD’s nominal budget increase of 3.2% for fiscal year 2024, particularly as inflation rates hover around 6%. This situation might restrict the DOD’s capacity to initiate new missions or advance certain technologies, necessitating resource reallocation for essential operational costs. Nevertheless, firms prioritizing innovation and supply chain efficiency are likely to develop strategies to mitigate these challenges.
Additionally, the commercial aerospace sector is poised for significant investments in the near future. As passenger traffic returns to pre-pandemic levels, new aircraft orders are expected to surge, driving increased spending on digitalization, product development, and next-generation technologies, including Advanced Air Mobility (AAM). Companies that effectively tap into these emerging markets will be well-positioned to benefit from the broader recovery of the aerospace industry.
In conclusion, the A&D industry is at a transformative stage, driven by technological innovation, geopolitical dynamics, and evolving market demands. The companies that can effectively navigate these changes, by embracing technological advancements, adapting to geopolitical shifts, and addressing inflationary challenges, will be best positioned for long-term success. In this article, we will explore the top seven undervalued defense stocks poised for growth, spotlighting companies that are seizing opportunities in emerging technologies, expanding their market presence, and delivering strong financial results.
Our Methodology
For this article, we used the Finviz stock screener to identify companies in the defense industry with a forward Price-to-Earnings (P/E) ratio of less than 15 as of October 7, 2024. We then reviewed the price targets set by analysts for each stock and compared them to their respective closing prices on October 7 to evaluate the upside potential. Additionally, we analyzed data from approximately 912 elite hedge funds tracked by Insider Monkey during the second quarter of 2024 to assess hedge fund ownership of each company. The stocks are ranked in ascending order based on their upside potential.
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).
A row of raw materials in pristine condition, waiting to be crafted into firearms.
Sturm, Ruger & Company, Inc. (NYSE:RGR)
Upside Potential: 24.24%
Forward Price to Earnings (P/E) Ratio: 14.23
Number of Hedge Fund Holders: 14
Sturm, Ruger & Company, Inc. (NYSE:RGR) stands out as a compelling candidate in the defense sector, known for its design, manufacturing, and sales of firearms across the United States. The company operates through two main segments: Firearms and Castings. With a diverse range of products, including rifles, pistols, and revolvers, Sturm Ruger has established itself as a trusted name in the firearms industry, making it a valuable addition to any portfolio focused on defense stocks.
In its Q2 2024 earnings call, Sturm, Ruger & Company, Inc. (NYSE:RGR) reported net sales of $130.8 million and diluted earnings of $0.47 per share, showcasing resilience in a challenging market. Although sales have declined compared to the previous year, the company’s proactive measures—such as increasing production by 18% and focusing on efficiency—have positively impacted profitability. The company’s robust financial position is highlighted by its $106 million in cash and short-term investments, zero debt, and a current ratio of 4.8 to 1, ensuring it has ample liquidity to capitalize on future opportunities.
The commitment to shareholder returns is evident, as Sturm, Ruger & Company, Inc. (NYSE:RGR) returned $27.1 million to shareholders in the first half of 2024 through dividends and share repurchases, indicating strong confidence in its business model. Notably, new product sales constituted 31% of total firearm sales in the first half of 2024, reflecting the company’s innovative approach. Recent product launches, such as the American Rifle Generation II and Marlin lever-action rifles, have generated strong demand, leading to a significant reduction in inventory levels.
Looking forward, Sturm, Ruger & Company, Inc. (NYSE:RGR) disciplined pricing strategy and focus on innovation position it well for long-term growth. As demand stabilizes and production ramps up, the company is poised to leverage its strong market presence. Analysts view Sturm Ruger as undervalued, suggesting that the stock is an attractive buy for those seeking exposure to the defense sector. Overall, Sturm, Ruger & Company, Inc. (NYSE:RGR) solid fundamentals, commitment to shareholder value, and innovative product pipeline make it a prime candidate for investment in the defense industry.
Overall RGR ranks 5th on our list of most undervalued defense stocks to buy according to analysts. While we acknowledge the potential of RGR as an investment, our conviction lies in the belief that some 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 RGR 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.