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 The Boeing Company (NYSE:BA) 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 commercial jetliner parked at an airport, reflecting the companies success in aviation.
The Boeing Company (NYSE:BA)
Number of Hedge Fund Holders: 54
The Boeing Company (NYSE:BA) is a leading aerospace company that manufactures commercial airplanes, space systems, and defense products for customers in more than 150 countries. As of 2022, it is the fifth largest defense contractor in the world, with defense-related sales of $31 billion, representing nearly half of the company’s overall revenue. The company has been under severe pressure after a door plug of an Alaska Airlines 737 Max 9 flight fell off after takeoff in January. It was the worst possible start to the year for the aerospace giant. Since the incident, there has been a slowdown in the production of airplanes, with an increased focus on safety.
As a result, during the first quarter of 2024, the company reported a net loss of $355 million. This, however, was less than the loss industry analysts anticipated, resulting in a negative EPS of -$0.56 against forecasts of -$1.43. The Boeing Company (NYSE:BA)’s financial performance during the quarter has shown resilience and signs of improvement, marked by a resurgence across the aviation industry. Despite that, Moody’s Investors Service is reportedly concerned that Boeing will struggle to deliver the 737 volumes that it requires to sell to retire debt and expand its free cash flow. Another bear case against the company is the executive-level shake-up that is taking place, causing consternation among some investors.
Most experts, however, believe that it is too big a company to fail, and with a backlog of orders worth $500 billion and international travel growing every year, The Boeing Company (NYSE:BA) is likely to turn things around in 2025 after the headwinds are over. The aerospace giant is also working on several defense-related projects, including the US Air Force’s Next Generation Air Dominance (NGAD) program, which aims to develop a sixth-generation fighter jet to replace the F-22 Raptor by 2030.
The stock’s analyst ratings range between Hold to Strong Buy, with an average price target of $223, at an upside of 24.5% from its current level. Furthermore, while hedge fund sentiment has decreased since the last quarter of 2023, there is still a sizable number of hedge fund investors in the stock, making The Boeing Company (NYSE:BA) one of the best stocks to buy now in the aerospace and defense industry.
Overall BA ranks 4th 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 BA 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 BA 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.