We recently compiled a list of the 10 Best Aerospace and Defense Stocks to Buy Now. In this article, we are going to take a look at where Howmet Aerospace Inc. (NYSE:HWM) stands against the other aerospace and defense stocks.
The world has been rocked with conflict over the last few years. The war between Russia and Ukraine has gone beyond 860 days, with no immediate end in sight. Azerbaijan and Armenia continue to engage in a regular exchange of fire after the latter lost control of the Nagorno-Karabakh region to the Azeris in 2020. The Middle East is up in flames, with defense experts describing the ongoing Israel-Hamas conflict as the worst crisis in the region since the Arab-Israeli War in 1973.
While the human impacts of war are undeniably tragic, it is also a time when defense companies make money and lure investors into loading up on their stocks. According to a report on CNN earlier this year, defense companies in the United States and Europe have thrived since Russia invaded Ukraine in February 2022. German automotive and arms manufacturer Rheinmetall’s share price had surged by a staggering 315% in two years following the start of the conflict, while BAE Systems posted a 105% gain. Northrop Grumman and Lockheed Martin also witnessed an increase in their share prices by 18% and 10%, respectively.
When the war broke out, industry analysts expected the aerospace sector to be affected by western sanctions placed on Russia. According to KPMG, the country is the source of 30% of the titanium used by Boeing and other large engine producers that power fighter jets and commercial aviation. Titanium is a key material that goes into the development of jet fan blades and landing gears. However, the supply of titanium from Russia to these companies has largely remained unaffected despite sanctions.
While sharing his insights on commercial aviation at the Morningstar Investment Conference in Chicago on June 26, Tony Bancroft from Gabelli Funds said that he had noticed a significant growth in aircraft orders lately, with both Airbus and Boeing having a 12-year backlog of orders. He believes there are three reasons driving it. The first catalyst, according to him, is China which accounts for 20% of the growth in orders to cater to the growing middle class in both China and India who want to travel more. Another critical factor he cited during his talk was that business travel has finally returned to the 2019 pre-pandemic level. Lastly, Tony highlighted the the rising middle class in the United States, and the world, which is increasing air travel and contributing to the economic growth in the industry.
Furthermore, Bancroft identified Textron as his hot stock pick in the aerospace and defense industry. He believes the stock is undervalued at its current share price of $85, and anticipates its value to hover around the $125 range in the future. Last year in March, the US Department of Defense (DoD) awarded a $1.3 billion contract to the company to develop helicopters to replace the aging Blackhawk fleet.
Another top stock that hedge funds are talking about is Carpenter Technology Corporation, a leading supplier of specialty alloys that holds a market share of roughly 40% in the aerospace industry. It was among the top picks during the Sohn Investment Conference in New York back in April. Mohammed Anjarwala, the managing director of Advent Global Opportunities, shared the following remarks about the company during the conference:
We think Carpenter is one of the best ways to play the growing backlog of planes at Boeing and Airbus, as they ramp up their billing rates.
At the time of the conference, the stock was trading at around $70 per share. Anjarwala forecasted that the value could go up to around $200 per share or 20 times forward P/E. It is currently valued at $107 per share.
Methodology
Insider Monkey’s database of 920 hedge funds was assessed, as of the first quarter of 2024. We have chosen the 10 best aerospace and defense stocks to buy now based on the hedge fund sentiment towards each stock. The stocks are ranked in ascending order of hedge fund holders in each company.
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).
A military aircraft in flight, showing the strength of the company’s combat & air mobility capability.
Lockheed Martin Corporation (NYSE:LMT)
Number of Hedge Fund Holders: 47
Lockheed Martin Corporation (NYSE:LMT) is the largest defense contractor in the world, with over $67 billion in revenue in 2023, of which defense-related sales contributed 96%. The company was formed in 1995 after the merger between Lockheed Corporation and Martin Marietta and is famed for manufacturing several notable aircraft over the past decades, including the F-35 fifth-generation fighter jet. The corporation has worldwide interests and is the biggest recipient of DoD contracts in the United States.
Since the start of Russia’s invasion of Ukraine in February 2022, Lockheed Martin Corporation (NYSE:LMT)’s share price has soared 29%. The stock is set for further gain with no end to the conflict in sight coupled with the aggravating situation in the Middle East. Earlier this year in April, the US government announced $61 billion in fresh aid for Ukraine and $26 billion for Israel. Most of the funds are likely to go into the procurement of pricey military equipment from companies such as Lockheed Martin Corporation (NYSE:LMT). During the first quarter of 2024, the defense contractor posted an EPS of $6.39 per share, beating analyst estimates of $5.8, driven by strong demand for its weapons, especially HIMARS, GMLRS, and the F-35.
Analyst ratings for the stock fluctuate between Hold and Strong Buy, with an average share price target of $502, which is 9% higher than its current level of $460 per share. On the other hand, 47 hedge funds are bullish on the stock, according to Insider Monkey, making it one of the best aerospace and defense stocks to buy now. Maria Ricciardone, Vice President, Treasurer, and Investor Relations shared confidence about Lockheed Martin Corporation (NYSE:LMT) being on track to meet full-year targets in the company’s Q1 2024 Earnings Call:
Highlights include robust funding for munitions multi-year procurement, continued investment in hypersonics and classified activities, and ongoing support for programs such as Black Hawk, CH-53K heavy lift helicopter, the fleet ballistic missile, C-130, and F-35. There were also additions to the original budget submission, including F-35 aircraft, C-130, and combat rescue helicopters. The initial budget request for FY2025, while still very early in the process, continues support of many of these same major programs, including the F-35, CH-53K, UH-60M, and others. In addition to emphasis on advanced munitions programs such as JASSM, LRASM, PrSM, Javelin, Daimler, and PAC-3, as well as hypersonic conventional prompt strike and the long-range hypersonic weapon.
Overall LMT ranks 6th on our list of the best aerospace and defense stocks to buy. You can visit 10 Best Aerospace and Defense Stocks to Buy Now to see the other aerospace and defense stocks that are on hedge funds’ radar. While we acknowledge the potential of LMT 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 LMT 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.
