In this article, we discuss the 10 defense stocks US senators love.
There has been a huge outcry around the stock trading activities of lawmakers in the United States in recent months as a select few politicians call for members of the US House of Representatives and the US Senate to be banned from stock trading altogether due to conflicts of interest. The politicians have argued that US Congress members who serve on important committees are often in charge of approving funding and other key decisions related to publicly-traded companies that ultimately affect their fortunes at the market.
This phenomenon is more evident than ever in the defense sector. As per an analysis of the stock trading activities of US lawmakers by news platform Sludge, at least 47 members of the US Congress, and their families, hold stock worth $2 million to $7 million in the top 100 defense firms in the United States. 11 of these members are senators who serve on important committees like Military Construction, Veterans Affairs, Homeland Security, Armed Services, and others. The combined worth of these positions is around $1.7 million.
Defense firms have seen a huge boom in the past few years as the US intensifies military spending in the wake of 9/11 and the wars in Iraq, Afghanistan, and other regions. The stocks of the five largest defense firms have rocketed 900% since 2001, smashing the performance of the S&P 500 over the period. Some of the top war stocks in the US Senate include Northrop Grumman Corporation (NYSE:NOC), L3Harris Technologies, Inc. (NYSE:LHX), and BWX Technologies, Inc. (NYSE:BWXT), among others discussed in detail below.
Photo by MIKE STOLL on Unsplash
Our Methodology
The companies listed below were picked from the Periodic Transaction Report(s) that US Senate members who trade stocks are obliged to file. Senate members who traded defense stocks feature on the list. Trades from 2021 are also included.
It is important to clarify that the companies were picked from the public record of investments US Senate members and their families have made in the past few months. The purchases may not have been made by the Senate members themselves but only disclosed on behalf of their families.
Data from around 900 elite hedge funds tracked by Insider Monkey was used to identify the number of hedge funds that hold stakes in each firm.
Defense Stocks US Senators Love
10. Honeywell International Inc (NASDAQ:HON)
Number of Hedge Fund Holders: 51
Honeywell International Inc. (NASDAQ:HON) is an industrial conglomerate with a large stake in defense manufacturing. Elite hedge funds hold bullish positions in the stock. Among the hedge funds being tracked by Insider Monkey, New York-based investment firm DE Shaw is a leading shareholder in Honeywell International Inc. (NASDAQ:HON) with 1.6 million shares worth more than $342 million.
As of August 2021, per data by news outlet Sludge, some of the prominent Senators that hold stakes in Honeywell International Inc. (NASDAQ:HON) include John Boozman, Tom Carper, Tommy Tuberville, and Sheldon Whitehouse.
Just like Northrop Grumman Corporation (NYSE:NOC), L3Harris Technologies, Inc. (NYSE:LHX), and BWX Technologies, Inc. (NYSE:BWXT), Honeywell International Inc. (NASDAQ:HON) is one of the stocks that elite investors are flocking to.
In its Q1 2021 investor letter, ClearBridge Investments, an asset management firm, highlighted a few stocks and Honeywell International Inc. (NASDAQ:HON) was one of them. Here is what the fund said:
“The portfolio’s quality bias and valuation discipline have generated compelling returns over time with typically strong relative results in more challenging environments as it did through the first three quarters of 2020. However, that same quality bias tends to create a more challenging relative performance environment for the Strategy during periods of sharp economic acceleration, which tend to benefit stocks that are more commodity linked or of lower quality. This has been the case during the vaccine- and stimulus-driven rally experienced late last year and during the most recent quarter. Sectors that lagged in the quarter included industrials, Honeywell International Inc. (NASDAQ:HON) also lagged in the quarter after previously generating strong returns over extended periods.”
9. The Boeing Company (NYSE:BA)
Number of Hedge Fund Holders: 50
The Boeing Company (NYSE:BA) operates as an aviation and defense firm. In July 2021, US Senate member William Hagerty revealed a purchase of the stock of the defense giant worth somewhere around $1,000 to $15,000. The transaction in this regard took place in June 2021.
The Boeing Company (NYSE:BA) is one of the favorite defense stocks on Wall Street. At the end of the fourth quarter of 2021, 50 hedge funds in the database of Insider Monkey held stakes worth $1.1 billion in The Boeing Company (NYSE:BA), the same as in the preceding quarter worth $1.4 billion.
In its Q1 2020 investor letter, Miller Value Partners, an asset management firm, highlighted a few stocks and The Boeing Company (NYSE:BA) was one of them. Here is what the fund said:
“We’ve known The Boeing Company (NYSE:BA) for a long time. It’s always been a high quality company that’s traded for a premium valuation owing to its position as a global duopoly. We’d looked at it recently after weakness due to its highly publicized Max 737 issues, but it never got cheap enough for us to pull the trigger. After the pandemic, the stock went into freefall as its customer bases’ business dried up and people worried about its liquidity. The stock fell from $338 on February 19th when the S&P hit its high to a low of $89. We bought the stock after the new CEO Dave Calhoun said publicly that it would not take government capital if it required equity dilution because it had many other options. Our average price is just above $120 where it was trading for less than 7x what it earned in 2018. It will likely take a while to normalize to those earnings levels, but this business will survive and ultimately we will own a leader in a global duopoly. Even on depressed forecasts, the company currently has about a 10-15% free cash flow yield. If and when the economy normalizes, we think The Boeing Company (NYSE:BA) could be worth more than double its current price.”
8. Raytheon Technologies Corporation (NYSE:RTX)
Number of Hedge Fund Holders: 50
Raytheon Technologies Corporation (NYSE:RTX) is an aerospace and defense firm. Elite hedge funds have been piling into the stock in recent months. At the end of the fourth quarter of 2021, 50 hedge funds in the database of Insider Monkey held stakes worth $2.3 billion in Raytheon Technologies Corporation (NYSE:RTX), compared to 48 in the preceding quarter worth $2.2 billion.
Some of the renowned members of the US Senate who hold positions in Raytheon Technologies Corporation (NYSE:RTX) stock, per August 2021, include Shelley Moore, Tom Carper, Susan Collins, John Hickenlooper, Gary Peters, Tommy Tuberville, and Sheldon Whitehouse.
In its Q4 2020 investor letter, Davis Funds, an asset management firm, highlighted a few stocks and Raytheon Technologies Corporation (NYSE:RTX) was one of them. Here is what the fund said:
“In today’s uncertain economy, we believe we have found such businesses trading at bargain prices in two sectors: industrials and financials. In the industrial space, concerns about the impact of the economic downturn on short-term profitability led to a wave of selling in a select group of leaders with durable competitive advantages, long records of profitability and bright long-term prospects. Companies like Raytheon Technologies Corporation (NYSE:RTX) is a wonderful example of attractive investments in this sector.”
7. General Dynamics Corporation (NYSE:GD)
Number of Hedge Fund Holders: 48
General Dynamics Corporation (NYSE:GD) is an aerospace and defense firm. On June 11, 2021, US Senate member John Boozman disclosed trades related to the stock that were worth somewhere between $1,000 to $15,000. The transactions in this regard took place in May 2021. Some other Senate members who hold stakes in the firm, as of August 2021, include Shelley Moore and Tommy Tuberville.
Hedge funds have been loading up on General Dynamics Corporation (NYSE:GD) in recent months. At the end of the fourth quarter of 2021, 48 hedge funds in the database of Insider Monkey held stakes worth $7.1 billion in General Dynamics Corporation (NYSE:GD), compared to 36 in the preceding quarter worth $6.7 billion.
6. Lockheed Martin Corporation (NYSE:LMT)
Number of Hedge Fund Holders: 42
Lockheed Martin Corporation (NYSE:LMT) operates as a security and aerospace firm. It is one of the elite defense stocks in the finance world. Among the hedge funds being tracked by Insider Monkey, New York-based firm Millennium Management is a leading shareholder in Lockheed Martin Corporation (NYSE:LMT) with 399,809 shares worth more than $142 million.
Prominent members of the US Senate who hold stakes in Lockheed Martin Corporation (NYSE:LMT) stock as of August 2021 include Roy Blunt, Shelley Moore, Tom Carper, Tommy Tuberville, and Sheldon Whitehouse.
Alongside Northrop Grumman Corporation (NYSE:NOC), L3Harris Technologies, Inc. (NYSE:LHX), and BWX Technologies, Inc. (NYSE:BWXT), Lockheed Martin Corporation (NYSE:LMT) is one of the stocks that hedge funds are monitoring as the Ukraine war intensifies.
In its Q4 2020 investor letter, RiverPark Advisors, LLC, an asset management firm, highlighted a few stocks and Lockheed Martin Corporation (NYSE:LMT) was one of them. Here is what the fund said:
“Despite better-than-expected third quarter results, Lockheed Martin Corporation (NYSE:LMT) shares were weak for the quarter as defense spending is expected to be flat for the coming year. With a record $150 billion backlog and almost 30% of its revenue coming from building F-35 aircraft with deliveries forecast to reach 180 per year in 4-5 years (3Q’s revenue upside was from the F-35), we believe Lockheed Martin Corporation (NYSE:LMT) should grow at a higher rate than overall defense budget growth and Street expectations over the next several years. Further, strategic acquisitions (LMT acquired AJRD for $4 billion in late December), debt pay down, a 3% dividend yield, and continued share buybacks from $6 billion per year of free cash flow should lead to even greater shareholder returns.”
5. L3Harris Technologies, Inc. (NYSE:LHX)
Number of Hedge Fund Holders: 40
L3Harris Technologies, Inc. (NYSE:LHX) provides aerospace and defense technology services. Some of the renowned members of the US Senate who hold positions in the stock, as of August 2021, include Shelley Moore and Tom Carper.
Hedge funds have been loading up on L3Harris Technologies, Inc. (NYSE:LHX) in recent months. At the end of the fourth quarter of 2021, 40 hedge funds in the database of Insider Monkey held stakes worth $1.1 billion in L3Harris Technologies, Inc. (NYSE:LHX), compared to 29 in the preceding quarter worth $492 million.
4. Northrop Grumman Corporation (NYSE:NOC)
Number of Hedge Fund Holders: 33
Northrop Grumman Corporation (NYSE:NOC) is an aerospace and defense firm. The hedge fund sentiment around the stock is largely positive. At the end of the fourth quarter of 2021, 33 hedge funds in the database of Insider Monkey held stakes worth $561 million in Northrop Grumman Corporation (NYSE:NOC), up from 29 in the preceding quarter worth $910 million.
In June 2021, US Senate member Charles Roberts revealed a purchase of Northrop Grumman Corporation (NYSE:NOC) stock on behalf of his spouse worth somewhere around $15,000 to $50,000. The transaction in this regard took place a month before it was made public.
In its Q4 2020 investor letter, Artisan Partners Limited Partnership, an asset management firm, highlighted a few stocks and Northrop Grumman Corporation (NYSE:NOC) was one of them. Here is what the fund said:
“New purchases include Northrop Grumman Corporation (NYSE:NOC). Northrop Grumman is a leader in manned aircraft, unmanned aircraft, spacecraft and missile-defense systems. We initiated a position in November 2020, as we believe the name is trading at an undeserved discount, despite having the potential to accelerate revenue over the next 24 months. In 2020, Northrop Grumman Corporation (NYSE:NOC) signed a contract to work with the US Air Force on their Ground Based Strategic Deterrent (GBSD) and B21 bomber. We believe the company’s portfolio is well-positioned with a highly desirable space segment business, significant classified content and GBSD driving growth. While the market has been focused on a “blue wave” risk to the defense budget, the industry is typically driven by threat assessment rather than budget constraints. If budget cuts were ever to affect the US Army, that customer represents less than 10% of the company’s revenue. This reinforces our belief that Northrop Grumman Corporation (NYSE:NOC) is well-positioned for the future and trades at an attractive valuation.”
3. BWX Technologies, Inc. (NYSE:BWXT)
Number of Hedge Fund Holders: 26
BWX Technologies, Inc. (NYSE:BWXT) makes and sells nuclear components. Elite hedge funds hold large stakes in the company. Among the hedge funds being tracked by Insider Monkey, Wisconsin-based investment firm Cardinal Capital is a leading shareholder in BWX Technologies, Inc. (NYSE:BWXT) with 1.6 million shares worth more than $79 million.
One of the prominent members of the US Senate who holds large stakes in BWX Technologies, Inc. (NYSE:BWXT) stock is David Perdue. Perdue has made at least 15 trades related to the stock in the past few months totaling over 145,000 in volume. Only house member Rohit Khanna has more trades of BWX Technologies, Inc. (NYSE:BWXT) stock.
In its Q3 2021 investor letter, Upslope Capital Management, an asset management firm, highlighted a few stocks and BWX Technologies, Inc. (NYSE:BWXT) was one of them. Here is what the fund said:
“BWX Technologies, Inc. (NYSE:BWXT) designs and produces nuclear reactors, components and fuel, primarily for the U.S. Government and Navy (and, more recently, NASA). The company is the sole supplier for its Naval products (~75% of sales), which are used for the power and propulsion of all of the Navy’s aircraft carriers and submarines. With nuclear subs (aka “boomers”) forming the backbone of the “Sea” leg of the Nuclear Triad, BWX plays a vital and sensitive role supporting the national security of the United States. Of course, BWX is exceptionally well-positioned should the saber-rattling vis-à-vis China continue. The recent Aukus security pact, which may eventually benefit BWX, illustrates the urgent and strategic importance of maintaining a modern nuclear-powered sub fleet.
Even if relations with China stabilize (and hopefully they do), BWX Technologies, Inc. (NYSE:BWXT) shares seem poised to outperform. After four years of essentially going nowhere, the stock currently trades near the low-end of its historical valuation range – just over 13x EBITDA vs. typical range of 13-16x. With a literal monopoly position (albeit against a sole purchaser), BWX has historically generated modest top-line growth with attractive returns on capital (mid-20s). Given the stability of the business and its competitive position, as well as the current geopolitical backdrop, current valuation seems very reasonable.
Importantly, beginning in 2017 BWX Technologies, Inc. (NYSE:BWXT) embarked on an aggressive capex expansion program, eventually tripling capex as a percentage of sales. In addition to ramping capacity to support Navy growth, BWX spent heavily developing its medical/radioisotope business. While not yet concluded, there is light at the end of the tunnel that should bode well for shares. 2020 appears to have been the capex peak and BWX seems on track for more normalized capex by the end of 2022. This should lead to de-levering the balance sheet (from an already-reasonable 3x gross debt/EBITDA), a potential acceleration in capital returned to shareholders, and/or the prospect of increased M&A.
Lastly, while BWX’s core today is its Naval operations, there is long-term optionality from the other units (~25% of revenue), which are currently focused on Canadian nuclear power (fuel and components), medical, space (NASA) power, and microreactors. BWX faces little competition, if any, across many of these areas. A sizable portion (>50%) of the recent capex program was also invested in a new Mo-99/Tc99 radioisotope (essentially a cleaner, more cost efficient alternative to current products on market – used in cardiology, oncology, neurology, and diagnostics) production line that should lead to an acceleration in growth outside of Naval operations.
Major risk factors for BWX Technologies, Inc. (NYSE:BWXT) include the possibility of physical accidents, production defects and resulting liabilities, as well as cost pressures due to strained government budgets and/or rising input costs, some leverage (~2x net), and ESG flow headwinds (not fundamental, of course, but a reality).”
2. Booz Allen Hamilton Holding Corporation (NYSE:BAH)
Number of Hedge Fund Holders: 25
Booz Allen Hamilton Holding Corporation (NYSE:BAH) provides defense management and technology consulting services. Some of the prominent members of the US Senate who hold large stakes in the company, as of August 2021, include Tom Carper and Bill Hagerty.
Booz Allen Hamilton Holding Corporation (NYSE:BAH) is one of the top defense stocks in the hedge fund universe. At the end of the fourth quarter of 2021, 25 hedge funds in the database of Insider Monkey held stakes worth $193 million in Booz Allen Hamilton Holding Corporation (NYSE:BAH), compared to 23 in the preceding quarter worth $198 million.
1. Huntington Ingalls Industries, Inc. (NYSE:HII)
Number of Hedge Fund Holders: 23
Huntington Ingalls Industries, Inc. (NYSE:HII) provides services for military ships. Hedge funds have been piling into the stock in recent months. At the end of the fourth quarter of 2021, 23 hedge funds in the database of Insider Monkey held stakes worth $199 million in Huntington Ingalls Industries, Inc. (NYSE:HII), compared to 15 in the preceding quarter worth $163 million.
A renowned member of the US Senate who holds a position in Huntington Ingalls Industries, Inc. (NYSE:HII) stock, as of August 2021, is Tina Smith. Smith serves on the Commission on Security and Cooperation in Europe.
You can also take a peek at 10 Best Healthcare Dividend Stocks to Buy Now and 10 Dividend Stocks with Over 20 Years of Dividend Increases.
Follow Insider Monkey on Twitter
Suggested Articles:
- 11 Biotech Stocks Popular On Reddit
- 10 Best Stocks to Buy According to Michael Burry
- 15 Best Penny Stocks to Buy Now
Disclosure. None. 10 Defense Stocks US Senators Love is originally published on Insider Monkey.
