Are you thinking about investing in defense stocks for the future? With rapid advancements in technology and global geopolitical tensions, defense stocks could be a lucrative investment opportunity. But with so many options available, how do you choose the best defense stocks to invest in for 2024?
The defense industry is a key player in global markets, driven by governments’ need to ensure national security and technological advancement. As the world becomes more unpredictable, defense stocks have been attracting attention from investors seeking stability and potential growth. However, making the right investment choices is crucial to maximizing returns.
Investing in defense stocks can provide a unique opportunity for investors looking to diversify their portfolio and capitalize on the changing geopolitical landscape. With technology becoming increasingly important in warfare and defense strategies, it is essential to identify the best defense stocks that have the potential to outperform the market in 2024. In this FintechZoom article, we will explore some of the top defense stocks that could be worth considering for your investment in 2024.
Introduction
There are currently over 45 ongoing armed conflicts around the world, according to the Geneva Centre for Security Policy. These conflicts range from small-scale clashes to full-blown civil wars, and they have a devastating impact on the lives of millions of people.
Some of the most prominent ongoing conflicts include:
- The war in Ukraine, which began on February 24, 2022, after Russia launched a full-scale invasion of the country. The conflict has caused a humanitarian crisis, with millions of Ukrainians displaced from their homes.
- The war in Yemen, which began in 2014 and is now the world’s worst humanitarian crisis. The conflict is between a Saudi-led coalition backing the Yemeni government and Houthi rebels.
- The Tigray War in Ethiopia, which began in 2020 and has killed thousands of people and displaced millions more. The conflict is between the Ethiopian government and the Tigray People’s Liberation Front.
- The Syrian Civil War, which began in 2011 and has caused over 500,000 deaths. The conflict is between the Syrian government and a variety of rebel groups.
- The Israel–Palestine conflict, which is one of the longest-running conflicts in the world. The conflict is between Israel and the Palestinians, and it has roots in the early 20th century.
Ukraine/Russia Conflict
The war in Ukraine is a particularly complex conflict with a long history. The two countries have a long-standing rivalry, and their relationship has been strained since the dissolution of the Soviet Union in 1991. Russia has annexed Crimea from Ukraine in 2014, and it has supported separatists in eastern Ukraine.
In February 2022, Russia launched a full-scale invasion of Ukraine. The invasion was met with widespread international condemnation, and the United States and its allies have imposed harsh sanctions on Russia. The war has caused a humanitarian crisis, with millions of Ukrainians displaced from their homes.
Israel/Palestine Conflict
The Israel–Palestine conflict is a complex conflict with a long history that dates back to the early 20th century. The conflict is between Israel and the Palestinians, who have been fighting for self-determination and statehood.
The conflict has been marked by numerous wars, intifadas (uprisings), and peace negotiations. There is currently a fragile ceasefire in place, but the underlying tensions between the two sides remain unresolved.
Governments Around the World are Increasing their Militaries Budgets
As geopolitical tensions rise worldwide, investors are faced with a growing dilemma: to invest in defense stocks that benefit from increased military spending or to avoid these companies altogether due to ethical concerns. While defense stocks have historically been a safe haven during periods of uncertainty, some investors are wrestling with the moral implications of profiting from war and conflict.
On one hand, defense stocks are often seen as a reliable source of income, as governments around the world are constantly investing in their militaries to maintain national security. This demand for defense products and services can lead to strong earnings growth for defense companies, making them attractive to investors seeking stability in their portfolios.
However, some investors are uncomfortable with the ethical implications of profiting from violence and conflict. They argue that investing in defense stocks directly contributes to the arms race and perpetuates the cycle of war. They also worry about the potential for their investments to be used for unjust or harmful purposes.
This ethical quandary is not new, but it is becoming more prominent as geopolitical tensions intensify. In recent years, there has been a growing movement among investors to promote ethical investing practices, often referred to as socially responsible investing (SRI). This movement encourages investors to consider the social and environmental impact of their investments, going beyond simply maximizing financial returns.
For investors who are conflicted about investing in defense stocks, there are a few options to consider. One option is to screen out defense companies from their portfolios altogether. This can be done by using SRI indexes or funds that exclude defense companies. Another option is to invest in defense companies that are committed to ethical practices, such as those that prioritize sustainability and responsible weapons development. Finally, investors can engage with defense companies directly to voice their concerns about the ethical implications of their business.
Best Defense Stocks to Invest in 2024
Investing in defense stocks can be a volatile proposition, but when geopolitical tensions rise and defense spending increases, these stocks can offer significant returns. Here are some of the best defense stocks to consider investing in during a 2024 war crisis:
Thales Air Defense stock (Starstreak missile system Manufacturer) [Euronext Paris: HO]
This stock is from Thales Air Defense limited, a subsidiary of Thales Group which is based in France. However, this subsidiary operates out of Belfast in Northern Ireland, the United Kingdom. It is the leading company for supplying short-range air defense systems in the UK. The company specializes in designing, manufacturing, assembling, and testing integrated weapon systems, missiles, or even components.
The goal of the company is to enhance the capability of armed forces around the globe to protect their facilities and equipment by providing them with sophisticated weapons and specialized protection systems that can be managed easily and efficiently.
Most of this company’s operations are focused on Starstreak (formerly Javelin) which is an advanced multi-purpose missile system that takes the design of missiles to a whole new level by fitting the system with destructive air-to-air, ground-to-ground, and ground-to-air capabilities. The major customer of this company is the British government as this missile system is the premier air defense capability system employed by the British Army.
The current geopolitical tensions in Europe have only caused the demand for the air defense system from Thales to rise thus raising the company’s value. The British government even recently pledged a specific number of Starstreak missile systems to aid the Ukrainians in the ongoing conflict in their country. Presently, the percentage value of the Thales Group over the past three months is 51.64%.
AeroVironment stock (Switchblade drones Manufacturer) [Nasdaq: AVAV]
This stock is from AeroVironment which is a company that is into designing and manufacturing small unmanned aircraft as well as fast-charge systems for batteries used in electric industrial vehicles. The company has grown into a leading manufacturer of unmanned aircraft systems (UAS) which has enabled it to produce advanced drones such as the Switchblade loitering missile systems along with EOD/CBRN unmanned ground vehicles. These products have formed part of the weapons being sent to Ukraine so that the country can defend itself from Russian aggression.
The sophistication and technology applied into the manufacturing process have increased the efficiency of the company’s products thus allowing it to be effective for military and commercial purposes due to the ability to generate reliable and actionable intelligence. Recently, the company donated more than 100 Quantix Recon Unmanned aircraft systems to the Ukrainian Ministry of Defence and Territorial Forces to assist in the ongoing war. The company’s percentage value in the last three months is 56.33%.
Raytheon Missiles and Defense stock (Stinger missiles) [NYSE: RTX]
This stock is from Raytheon Technologies formerly known as United Technologies and is one of the giant companies in the defense industry. One of its products is being used in the ongoing conflict between Russia and Ukraine. The product is Stinger missiles which are designed for shooting down helicopters and other low-flying aircraft.
The company is a defense and aerospace company that supplies advanced systems and services to military, government, and commercial clients around the globe. The company’s operations are divided into four major business categories. The first category is Raytheon Intelligence & Space, a developer and supplier of cyber & software solutions as well as integrated sensor and communication systems that are critical to advanced missions and advanced training; the customers are those involved in commercial, intelligence, federal, and defense activities.
The second category is Collins Aerospace Systems which supplies aerospace and defense products along with aftermarket service solutions for defense and commercial space operations as well as aircraft manufacturers around the world. The next category is Raytheon Missiles & Defense segment which designs, develops, and manufactures air and missile defense systems.
The last category is Pratt & Whitney which specializes in providing aircraft engines for military, business jet, commercial, and general aviation customers, especially with the rising demand for GTF and narrow-body engines. The company also has a diversified exposure to the investment priorities of the Department of Defense, especially in areas like missile defense, hypersonics, and cybersecurity which has further strengthened its stock. Based on the figures from Bank of America, RTX stock has a “buy” rating and a price target of $115 with the stock closing at $98.19 on 7th March. Also, the company’s percentage value in the last three months stands at 15.37%.
Saab Bofors Dynamics Stock (portable anti-tank weapons) [OTC: SAABF]
This stock is from Saab Bofors Dynamics, a company that is into the manufacture and sales of products, solutions, and services for commercial aviation, civil security, and military defense. Its operations are divided into several segments which include Surveillance, Dynamics, Aeronautics, Support and Services, Kockums as well as Industrial Products and Services.
The Surveillance segment focuses on supplying effective solutions for surveillance and decision support, threat detection and protection as well as security and safety. The Dynamics segment focuses on manufacturing products that consist of torpedoes, unmanned underwater vehicles, missile systems, signature management systems, and ground combat weapons like portable anti-tank weapons some of which have found their way to Ukraine to help them in the war against Russia.
The Aeronautics segment encompasses the sophisticated development of civil aviation and military technology. The Support and Services segment specializes in providing cost-efficient service and support for all the company’s products. The Kockums segment is concerned with the development, delivery, and maintenance of solutions for naval environments. The company has its headquarters in Stockholm, Sweden and its percentage value over the past three months is 57.92%.
Lockheed Martin [NYSE: LMT]
This is the biggest defense contractor in the world and the company is a behemoth when it comes to supplying top-notch fighter aircraft as it has dominated the western hemisphere of the market. The company is majorly involved in aeronautics with the F-35 program being the prime feature. It also has other aspects such as rotary and mission systems, dominated by the Sikorsky helicopter program; there is missiles and fire control which encompasses the creation of missiles and missile defense systems; space systems which specialize in the manufacture of satellites.
The company’s large involvement in the F-35 program along with hypersonic missiles and space militarization has placed it in a firm position to contribute effectively to areas of continuous growth within the defense budget. The F-35 accounts for around 30% of the firm’s revenue and is sustainable for another five decades. Additionally, mature markets, customer-paid R&D, regulated margins, and the visibility of long-term revenue enable the company to provide its shareholders with substantial dividends.
The company did have a solid fourth quarter last year with the financial report showing that earnings increased 17% year-over-year (YoY) to $7.47 per share. It was then predicted by financial analysts that the company’s fiscal earnings in 2022 should rise by 16.5% YoY to $26.52 per share before going on to rise further by another 5.1% in 2023 to $27.88 per share which forms part of why it is a good idea to invest in the company’s stock now.
There is a joint venture between Raytheon technologies and Lockheed Martin to produce Javelin missiles that have been shipped to Ukraine to assist them in the war against Russia. The missile defense systems of Lockheed Martin have also been in demand as a result of the war. The percentage value of the company over the last three months is 20.47%.
Northrop Grumman [NYSE: NOC]
This is one of the largest manufacturers of military technology and weapons in the world which has given the company one of the best defense portfolios on the market with a well-grounded long-term outlook. Northrop Grumman has four major segments of operation namely Mission Systems. Aeronautic Systems, Space Systems, and Defense Systems.
The company also offers security systems and services to clients in various fields such as information systems, electronics, and aerospace. The company’s largest source of revenue comes from its capability to supply tactical intelligence to aircraft systems and provide the military with weapon and mission systems along with radar, acoustic, and infrared/electro-optical sensors.
The company has grown consistently over the years in terms of earnings, dividends, revenues, and free cash flow; this is seen in figures of how the company has performed in these metrics by averaging yearly growth of 20%, 11.8%, 8.5%, and 8.8% respectively. This is possible due to the aggregate increase in defense spending. This has made the company’s stock relatively stable while also offering even more potential for growth due to its involvement in the space industry. Some of the clients of Northrop Grumman include telecommunications companies and NASA who are on the receiving end of the company’s services that relate to space security, space logistics, propulsion systems as well as satellite launches and maintenance.
Considering the space revenue currently stands at $350 billion and is expected to keep growing for the next two decades, the company is well-positioned to keep tapping into this growing revenue while providing its shareholders with significant dividends. According to Bank of America, NOC stock has a “buy” rating and a price target of $540 with the stock closing at $477.95 on 7th March. The percentage value of the company over the last three months is 12.29%.
Ducommun Incorporated [NYSE: DCO]
This is a manufacturing company that is involved in designing, developing, and manufacturing sophisticated electronic systems, large contoured Aerostructures, and aftermarket services for military, aerospace, defense, and space markets around the world. The company’s operations are divided into two segments namely Structural Systems and Electronic Systems business segments.
The Structural Systems segment is concerned with designing, engineering, and manufacturing components of contoured aerostructures while also assembling and supplying composite and metal bonded structures. On the other hand, the Electronics Systems segment is concerned with the supply of electronics and electromechanical products that are in demand globally in technology-based markets.
Some of the products manufactured by the company include fixed-wing and rotary-wing aircraft for commercial and military purposes, RF products, human-machine interface, etc. The company’s percentage value in the last three months stands at 31.01%.
Conclusion
In addition to these individual stocks, investors can also consider investing in exchange-traded funds (ETFs) that track the performance of the defense sector. Some popular defense ETFs include:
- Invesco Aerospace & Defense (PPA)
- SPDR S&P Aerospace & Defense (XAR)
- iShares U.S. Aerospace & Defense ETF (ITA)
Please note that investing in defense stocks is inherently risky, and there is no guarantee that these stocks will outperform the market. Investors should carefully consider their risk tolerance and investment goals before making any investment decisions.
