The invasion of Ukraine by Russia is not a secret anymore and it is only evidence of the rising geopolitical tensions in the world. It is a major political event and it is bound to have a reverberating effect on people’s investment across the world. However, one major way that investors can protect their portfolios is by investing in defense stocks. There has been a shift in the approach to investing in defense stocks ever since Russia invaded Ukraine as it is estimated that there is likely to be a significant increase in U.S. spending on defense while the European defense budget is also likely to get an increase. The increase in defense budget spending is likely to create more opportunities for some of the big players in the defense industry.
The ongoing invasion has only further highlighted the importance of the defense industry with the various products manufactured by the industry. The products include weapons such as fighter jets, bombers, combat vehicles, and ships; the industry also offers services in the areas of robotics, intelligence systems, information technology (IT), analytics, and cybersecurity. Since the major customers of this industry are the governments of some of the most developed countries in the world, it means there is always demand for the products. With the likely increase in defense budget spending that is on the horizon, demand will also increase thus causing the value of major companies in the defense industry to rise, and that’s why is important to read Best Defense Stocks to Invest in 2022
Generally, the government budgets and spending on defense are less prone to volatility than other parts of the economy and currently, there is an uptrend in defense spending due to the ongoing political tensions in the world that we cannot hide from anymore. A good example is the ongoing invasion of Ukraine by Russia even though it initially looked like it might not happen. It is now expected that globally, defense spending will rise at an average annual rate of 3% through 2023 to get to $2.1 trillion.
Some of the products manufactured by these major companies have made their way to Ukraine to help the country defend its territory against Russia and this has led to these companies increasing in value. It has even been admitted by some of these weapons manufacturing companies that the war in Ukraine has greatly benefitted them and as long as the war continues, this will continue to be the case. As the companies benefit, their shareholders will not be exempted from the benefits which is why this might be the best time to invest in some of the defense stocks that are available in the market. Therefore, this article will be examining the top defense stocks that are ideal for investment in 2022.
Table of contents
- Thales Air Defense stock (Starstreak missile system Manufacturer) [Euronext Paris: HO]
- AeroVironment stock (Switchblade drones Manufacturer) [Nasdaq: AVAV]
- Raytheon Missiles and Defense stock (Stinger missiles) [NYSE: RTX]
- Saab Bofors Dynamics stock (portable anti-tank weapons) [OTC: SAABF]
- Lockheed Martin [NYSE: LMT]
- Northrop Grumman [NYSE: NOC]
- Ducommun Incorporated [NYSE: DCO]
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%.
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