We recently compiled a list of the 11 Best Aerospace and Defense Stocks to Buy Right Now. In this article, we are going to take a look at where BWX Technologies, Inc. (NYSE:BWXT) stands against the other best aerospace and defense stocks to buy.
How Did The Aerospace And Defense Sector Perform in Q3 2024?
According to a report by Dinan Capital Advisors, the aerospace and defense industry’s EBITDA multiples increased by around 8% on average during the third quarter of 2024. Within the industry, the Maintenance, Repair, and Overhaul (MRO) segment stood out with the highest EBITDA multiple of more than 19%. The robust performance in the sector was driven by increased government spending, AI defense implementation, and increased global travel. As per the report, the global market size of the aerospace and defense sector is estimated to grow from $1 trillion to around $1.5 trillion during the next decade.
There are various factors contributing to growth within the industry. Firstly, the defense sector is experiencing significant expansion due to the ongoing conflicts in the Middle East and Ukraine. This rising defense demand resulted in a record defense order backlog of $747 billion, indicating an 11% increase year-over-year. Moreover, the Senate Armed Services Committee has projected that Congress will finalize the FY25 US defense budget at approximately $833 billion, exceeding last year’s spending limits.
In addition to increased defense spending, which is one segment of the overall aerospace and defense industry, international air traveling is also improving. According to a report by FlightGlobal, the global passenger traffic grew by 7.4% subsequently during the third quarter. Although the profitability of the global airline industry is still down by around $1.7 billion year-over-year, the subsequent growth in passengers indicates an ongoing recovery.
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Mitchell Reiss, American diplomat and distinguished fellow at the Royal United Services Institute appeared on a CNBC interview on November 7 to discuss how the defense sector will perform under President-elect Donald Trump. He said that the United States government is expected to increase its defense spending under President Donald Trump. Currently, defense spending is at its lowest level since 1998 and the geopolitical situation is more dangerous than the said year. Reiss thinks that the president will double down on some of the initiatives from his first term. Trump sees China as a United States adversary and he sees Israel and Saudi Arabia as stabilizing forces in the Middle East and will want to build upon the Abraham Accords. He also thinks that the president will call upon its European allies to increase defense spending.
While Reiss expects the United States’ defense spending to increase, he also noted that a third of the NATO countries are still not hitting the 2% mark in terms of their defense spending. Considering the geopolitical tensions between Russia and Ukraine, European countries would also naturally pivot towards increasing their defense spending. Reiss believes that if someone is interested in defense stocks there is a lot of growth potential within the industry.
An aerial view of a nuclear plant, its domes casting a unique shadow.
Our Methodology
To curate the list of the 11 best aerospace and defense stocks to buy right now, we used the Finviz stock screener. Using the screener we aggregated a list of companies working in the aerospace and defense industry and sorted them by market capitalization. Next, we sourced the number of hedge funds holding each company from Insider Monkey’s Q3 2024 database. The list is ranked in ascending order of the number of hedge funds.
Why do we care about what hedge funds do? 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).
BWX Technologies, Inc. (NYSE:BWXT)
Number of Hedge Fund Holders: 43
BWX Technologies, Inc. (NYSE:BWXT) is a specialized defense company with expertise in the nuclear segment. The company designs and produces critical parts for naval nuclear reactors used in US submarines and aircraft carriers. This includes everything from the reactors themselves to the nuclear fuel that powers them. It operates through two main segments namely Government and Commercial application.
One of the key competitive edges of the company is that it works closely with the US Department of Energy (DOE) and the National Nuclear Security Administration (NNSA). This allows it to work on long-term multi-billion dollar contracts. Recently, on December 2nd, BWX Technologies, Inc. (NYSE:BWXT) announced that it has been awarded a significant contract worth up to $3 billion from the U.S. Department of Energy (DOE) to continue cleanup operations at the West Valley Demonstration Project in New York. This contract is significant as it ensures the continued involvement of the company in the West Valley site, where it has been active since 2011.
Moreover, BWX Technologies, Inc.’s (NYSE:BWXT) third-quarter revenue of $672 million for fiscal 2024 was largely driven by robust growth in high-margin government contracts. Management reported that the quarterly revenue grew 14% year-over-year, with government operations contributing around $560 million, indicating 17% growth during the same time.
To further boost its advanced specialty materials portfolio the company on November 4, announced signing a purchase agreement to acquire L3Harris’ Aerojet Ordnance Tennessee, Inc. (A.O.T.) business for approximately $100 million. Management is confident that the acquisition will allow the company to enhance its ability to develop and manufacture advanced materials for various sectors, including commercial, military, and space applications. It is one of the best aerospace and defense stocks to buy right now.
Heartland Value Fund stated the following regarding BWX Technologies, Inc. (NYSE:BWXT) in its first quarter 2024 investor letter:
“We believe Chart represents a better opportunity in the Industrials sector than BWX Technologies, Inc. (NYSE:BWXT), the nuclear components manufacturer we sold in the first quarter.
BWX was a profitable investment, but two catalysts drove valuations to a level we deemed fully priced. For starters, BWX’s development of small nuclear reactors gained steam, with appeal to Energy sector customers. So, too, did the company’s work on medical nuclear isotopes, critical to healthcare supply and security issues.
We sold the stock, which jumped 33.7% in the quarter, after hitting our price target. At 30X earnings, BWX’s risk-reward proposition disintegrated.”
Overall, BWXT ranks 11th on our list of best aerospace and defense stocks to buy right now. While we acknowledge the potential of BWXT to grow, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than BWXT 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.
