In this article, we discuss 11 best aerospace stocks to buy.
Economic recovery for the aerospace and defense sector gained momentum in 2022 on the back of increasing demand for air travel. As per an outlook survey by Deloitte, 88% of senior executives noted that the business outlook for the aerospace and defense industry in 2023 is “somewhat to very positive.” The reasons for their optimism included developments in new technologies and segments like advanced air mobility, evolution of business models and greater exploration of space, and the use of digital thread and smart factories.
According to Fitch Ratings, the Aerospace & Defense outlook is improving, and feasible demand patterns should result in growing cash flows and deleveraging capacity starting in 2023. Fitch thinks commercial aircraft manufacturers and suppliers will be beneficiaries of robust global demand for new aircraft fleets as world travel recovers to pre-pandemic levels, despite the current recessionary threats looming ahead.
Fitch sees deliveries of new large commercial aircrafts increasing by over 20% as compared to 2022, resulting in greater free cash flow and financial freedom for OEMs. Production rates should remain comparatively normal during the first half of next year, but could heighten towards the end of 2023. The aerospace industry is well positioned for long-term growth as the geopolitical environment remains unstable and defense capabilities around the world are being strengthened. Some of the best aerospace stocks to invest in include Northrop Grumman Corporation (NYSE:NOC), Lockheed Martin Corporation (NYSE:LMT), and Raytheon Technologies Corporation (NYSE:RTX).
Our Methodology
We selected the following aerospace stocks based on positive analyst coverage, strong business fundamentals, and market visibility. We have assessed the hedge fund sentiment from Insider Monkey’s database of 920 elite hedge funds tracked as of the end of the third quarter of 2022. The list is arranged according to the number of hedge fund holders in each firm.
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Best Aerospace Stocks To Buy
11. AeroVironment, Inc. (NASDAQ:AVAV)
Number of Hedge Fund Holders: 18
AeroVironment, Inc. (NASDAQ:AVAV) is headquartered in Arlington, Virginia, and the company designs, develops, delivers, and supports robotic systems for government agencies and businesses in the United States and internationally. The company operates through four segments – Unmanned Aircraft Systems, Tactical Missile System, Medium Unmanned Aircraft Systems, and High Altitude Pseudo-Satellite Systems.
On December 7, Canaccord analyst Austin Moeller raised the price target on AeroVironment, Inc. (NASDAQ:AVAV) to $106 from $105 and maintained a Buy rating on the shares. The analyst noted that Q3 revenues missed his estimates due to an unfeasible mix and an impact on gross margins from $4 million in amortization of intangibles but the company lifted its 2023 top-line guidance on the back of high demand for both the Puma Small UAS and the Switchblade 300 and 600 loitering munitions.
According to Insider Monkey’s data, AeroVironment, Inc. (NASDAQ:AVAV) was part of 18 hedge fund portfolios at the end of the third quarter of 2022, up from 10 in the prior quarter. Cathie Wood’s ARK Investment Management is the largest stakeholder of the company, with 750,191 shares worth $62.5 million.
Like Northrop Grumman Corporation (NYSE:NOC), Lockheed Martin Corporation (NYSE:LMT), and Raytheon Technologies Corporation (NYSE:RTX), AeroVironment, Inc. (NASDAQ:AVAV) is one of the best aerospace stocks to invest in.
10. Woodward, Inc. (NASDAQ:WWD)
Number of Hedge Fund Holders: 19
Woodward, Inc. (NASDAQ:WWD) is a Colorado-based company that designs, manufactures, and services control solutions for the aerospace and industrial markets worldwide. Woodward, Inc. (NASDAQ:WWD)’s Aerospace segment provides fuel pumps, metering units, actuators, air valves, specialty valves, fuel nozzles, thrust reverser actuation systems, flight deck controls, actuators, servocontrols, motors, and sensors for aircrafts. Woodward, Inc. (NASDAQ:WWD) is one of the best aerospace stocks to invest in.
On November 17, Woodward, Inc. (NASDAQ:WWD) reported a Q3 non-GAAP EPS of $0.84 and a revenue of $640 million, outperforming Wall Street estimates by $0.10 and $13.45 million, respectively. The company expects total net sales for fiscal 2023 to be between $2.60 billion and $2.75 billion, versus a consensus of $2.37 billion. Aerospace sales growth percentage is forecasted to be between 14%-19%. Woodward, Inc. (NASDAQ:WWD) expects earnings per share to be between $3.15 and $3.60.
Truist analyst Michael Ciarmoli on November 18 raised the price target on Woodward, Inc. (NASDAQ:WWD) to $88 from $80 but kept a Hold rating on the shares. The company’s Q3 revenue outperformed expectations and its FY23 guidance was better than consensus but high interest, incentive comp, weak industrial margins, and R&D expense drove worse than anticipated earnings and free cash flow outlook, the analyst told investors in a research note.
According to Insider Monkey’s Q3 data, 19 hedge funds were long Woodward, Inc. (NASDAQ:WWD), compared to 18 funds in the earlier quarter. Boykin Curry’s Eagle Capital Management is the largest position holder in the company, with 4.3 million shares worth $348 million.
Here is what Carillon Eagle Small Cap Growth Fund has to say about Woodward, Inc. (NASDAQ:WWD) in its Q1 2022 investor letter:
“Woodward (NASDAQ:WWD) develops and produces control systems and energy conversion solutions and components for the aerospace and industrial end markets. The company’s stock was a strong performer in the quarter, as the end markets it serves began recovering in the second half of 2021 from a COVID-induced slowdown. Woodward’s relatively high exposure to narrow-body commercial jets should be a positive in the near-term, as narrow-body manufacturing, along with the demand for Woodward’s aftermarket components, is seeing a quicker recovery and is a growing share of the total fleet over their wide-body counterparts. Current energy and power demand is driving growth in power generation, as well as oil, gas, and alternative fuels, which has benefited the industrial side of the business.”
9. Hexcel Corporation (NYSE:HXL)
Number of Hedge Fund Holders: 21
Hexcel Corporation (NYSE:HXL) was founded in 1946 and is headquartered in Stamford, Connecticut. The company develops, manufactures, and markets structural materials for use in commercial aerospace, space and defense, and industrial markets. It operates through two segments, Composite Materials and Engineered Products. Hexcel Corporation (NYSE:HXL) expects EPS for full-year 2022 of $1.12-$1.24 versus the prior guidance of $1.00-$1.24, which is still in line with the $1.23 analyst consensus, but narrowed full-year revenue guidance to $1.53 billion-$1.6 billion from $1.50 billion-$1.63 billion previously. However, the new revenue guidance is still in line with the $1.59 billion consensus.
BMO Capital analyst John McNulty on November 1 maintained a Market Perform rating on Hexcel Corporation (NYSE:HXL) and lowered the firm’s price target on the shares to $61 from $66. The company’s Q3 results were “more modest than expected”, but its earnings recovery from the COVID-19 lows continues to improve, the analyst told investors in a research note.
According to Insider Monkey’s third quarter database, 21 hedge funds were long Hexcel Corporation (NYSE:HXL), compared to 25 funds in the prior quarter. Dmitry Balyasny’s Balyasny Asset Management is the largest stakeholder of the company, with 1.05 million shares worth $54.5 million.
Here is what LRT Capital Management has to say about Hexcel Corporation (NYSE:HXL) in its Q1 2022 investor letter:
“Hexcel manufactures carbon fiber composite materials with the primary end markets being aerospace and defense. The company’s stock price was hit heavily last year due to the decline in the aerospace market, but the stock is making an impressive comeback this year as the outlook for travel and aerospace demand improves. The near-term demand for lightweight, high-performance carbon fiber composites is still uncertain, but the longer-term trend is clearly very strong. As airplane manufacturers look to improve the fuel efficiency and performance of their planes, the primary way of doing this is to reduce weight. The 787, 777X and A350 are just the most recent examples of planes from Boeing and Airbus that utilize an increasing amount of carbon fiber materials in their construction. Just as is the case with Marriott, we do not view recent results as meaningful or indicative of a long-term trend, but rather a once in a century aberration due to the Covid-19 pandemic. Once Covid-19 recedes, we expect the demand for more fuel-efficient planes to return rather quickly, powering the demand for the company’s light weight carbon composites.”
8. Textron Inc. (NYSE:TXT)
Number of Hedge Fund Holders: 28
Textron Inc. (NYSE:TXT) was founded in 1923 and is headquartered in Providence, Rhode Island. The company operates in the aircraft, defense, industrial, and finance businesses. Textron Inc. (NYSE:TXT)’s Aviation segment manufactures, sells, and services business jets, turboprop and piston engine aircrafts, military trainers, and defense aircrafts. It is one of the premier aerospace stocks to invest in.
On December 5, Jefferies analyst Sheila Kahyaoglu noted that the $80 billion future long-range assault aircraft program, awarded to Textron Inc. (NYSE:TXT)’s Bell V-280 by the U.S. Army, could be a “$66 billion revenue generator through 2050”, adding $11 to Textron Inc. (NYSE:TXT) stock’s net present value. The analyst also contended that its V-280 tilt rotor is a “structurally better aircraft” as the decision to award the contract to Textron Inc. (NYSE:TXT) came despite the “very strong” showing from Lockheed Martin’s Sikorsky team.
According to Insider Monkey’s data, 28 hedge funds were long Textron Inc. (NYSE:TXT) at the end of the third quarter of 2022, compared to 23 funds in the prior quarter. Phill Gross and Robert Atchinson’s Adage Capital Management is the leading position holder in the company, with 3.18 million shares worth $185.7 million.
7. General Dynamics Corporation (NYSE:GD)
Number of Hedge Fund Holders: 35
General Dynamics Corporation (NYSE:GD) is a Virginia-based aerospace and defense company. It runs through four segments – Aerospace, Marine Systems, Combat Systems, and Technologies. The Aerospace segment designs, manufactures, and sells business jets, offers aircraft maintenance and repair, charter, aircraft-on-ground support and completion, staffing, and fixed-base operator services. General Dynamics Corporation (NYSE:GD) is one of the leading aerospace stocks to invest in.
On December 7, General Dynamics Corporation (NYSE:GD) declared a $1.26 per share quarterly dividend, in line with previous. The dividend is payable on February 10, 2023 to shareholders of record on January 20. The dividend yield on December 20 came in at 2.06%.
Citi analyst Jason Gursky initiated coverage of General Dynamics Corporation (NYSE:GD) on December 8 with a Buy rating and a $298 price target. The growth outlook for the aerospace segment is optimistic, given recent order trends and a backlog level that provides earnings visibility for the next several years, the analyst wrote in a research note.
According to Insider Monkey’s data, 35 hedge funds were long General Dynamics Corporation (NYSE:GD) at the end of September 2022, compared to 42 funds in the prior quarter. James A. Star’s Longview Asset Management is the biggest position holder in the company, with 30 million shares worth $6.3 billion.
Here is what Oakmark Global Fund has to say about General Dynamics Corporation (NYSE:GD) in their Q1 2021 investor letter:
“The second new U.S. equity purchase was General Dynamics, a leading U.S. defense contractor and owner of the world’s premier business jet franchise (Gulfstream). We were able to purchase this high-quality and durable business at a meaningful discount to our estimate of its intrinsic value after a series of near-term concerns hurt its share price. Taking a longer term view, the company’s business jet franchise should benefit from a multi-year investment program in new, differentiated products. Also, its free cash flow conversion is set to improve materially and the company is poised to benefit from a highly visible ramp up in revenue related to next generation nuclear-powered submarines. As these positives come into clearer view, we expect sentiment to improve, along with the company’s share price.”
6. The Boeing Company (NYSE:BA)
Number of Hedge Fund Holders: 42
The Boeing Company (NYSE:BA) was incorporated in 1916 and is based in Chicago, Illinois. The company designs, develops, manufactures, sells, and supports commercial jetliners, military aircraft, satellites, missile defense, human space flight and launch systems, and related services worldwide. The company operates through four segments – Commercial Airplanes, Defense, Space & Security, Global Services, and Boeing Capital. On December 16, The Boeing Company (NYSE:BA) received the biggest order for commercial aircraft in history as United Airlines Holdings, Inc. (NASDAQ:UAL) agreed to buy 100 twin-aisle 787 Dreamliners, with an option to buy 100 more. The carrier also will buy 100 of Boeing’s 737 MAX single-aisle jets.
Susquehanna analyst Charles Minervino raised the price target on The Boeing Company (NYSE:BA) on December 14 to $217 from $185 and kept a Positive rating on the shares. The analyst updated his model to factor in November’s order and delivery data. He remains optimistic as high profile orders provide further evidence of a solid commercial aerospace demand outlook.
According to Insider Monkey’s data, 42 hedge funds were bullish on The Boeing Company (NYSE:BA) at the end of Q3 2022, compared to 51 funds in the prior quarter. Ken Griffin’s Citadel Investment Group is a prominent stakeholder of the company, with 1.5 million shares worth $178.5 million.
In addition to Northrop Grumman Corporation (NYSE:NOC), Lockheed Martin Corporation (NYSE:LMT), and Raytheon Technologies Corporation (NYSE:RTX), elite investors are piling into The Boeing Company (NYSE:BA) for exposure to the aerospace industry.
Meridian Funds made the following comment about The Boeing Company (NYSE:BA) in its Q3 2022 investor letter:
“We similarly remained invested in largely out-of-favor The Boeing Company (NYSE:BA) , a global leader in developing and producing commercial jet aircraft. Due to some self-inflicted wounds and a bit of bad luck, as well as dramatic declines in air travel early in the pandemic, investor sentiment for this company has simply been awful. As part of our contrarian thinking, however, we view the business as critical to global transportation needs and see multiple catalysts to improve sentiment. In addition to the current surge in air travel worldwide, ramped up production of the 737 MAX aircraft and the pending restart of 787 Dreamliner deliveries should help turn broader sentiment. Additionally, we anticipate a meaningful inflection in cash flow as Boeing starts delivering aircraft currently in storage as well as the eventual expansion of its production in both core platforms.”
5. Northrop Grumman Corporation (NYSE:NOC)
Number of Hedge Fund Holders: 46
Northrop Grumman Corporation (NYSE:NOC) is an aerospace and defense company that operates worldwide through Aeronautics Systems, Defense Systems, Mission Systems, and Space Systems segments. On December 7, Northrop Grumman Corporation (NYSE:NOC) announced that it is competing with former partner Blue Origin to win NASA’s estimated $10 billion contract for its next moon lander. The aerospace company is collaborating with Leidos Holdings, Inc. (NYSE:LDOS) to manufacture a spacecraft that will bring astronauts to the lunar surface as part of the Artemis missions. Northrop Grumman Corporation (NYSE:NOC) is one of the premier aerospace stocks to invest in.
On December 15, Morgan Stanley analyst Kristine Liwag raised the firm’s price target on Northrop Grumman Corporation (NYSE:NOC) to $626 from $585 and maintained an Overweight rating on the shares as well as her Top Stock Pick designation.
According to Insider Monkey’s third quarter database, 46 hedge funds were bullish on Northrop Grumman Corporation (NYSE:NOC), compared to 45 funds in the prior quarter. Donald Yacktman’s Yacktman Asset Management is the largest stakeholder of the company, with 433,932 shares worth $204 million.
LRT Capital made the following comment about Northrop Grumman Corporation (NYSE:NOC) in its October investor letter:
“Based in Virginia, Northrop Grumman Corporation (NYSE:NOC) is one of the world’s largest defense contractors with annual revenue of more than $30 billion. The company operates in a cozy oligopoly, that after decades of consolidation the US defense market is now controlled by five large companies: The Boeing Company (BA), General Dynamics Corporation (GD), Lockheed Martin Corporation (LMT), Northrop Grumman Corporation (NOC), and Raytheon Technologies Corporation (RTX).
Industry barriers to entry are immense, government procurement cycles are extremely long, and the consolidated industry structure reflects this. This industry structure has allowed Northrop to earn stable mid-teens returns on invested capital (ROIC) and grow earnings per share at a rate of over 13% per year in the past decade, despite a topline that has grown only in-line with inflation. Even after the recent run-up in the stock price, it trades at approximately 15x, next year’s earnings estimates, far below the S&P 500 index, despite being an above average company. While nominally, there are five major defense contractors, the true industry concentration is even higher because not all companies compete in all possible business segments. General Dynamics’ division submarine division, Electric Boat, is the sole supplier of nuclear power submarines in the United States. Lockheed Martin is the sole supplier of the F-35 and F-22. Northrop was the sole bidder on the contract to develop the next generation of intercontinental ballistic missiles; and so on…” (Click here to read the full text)
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4. Lockheed Martin Corporation (NYSE:LMT)
Number of Hedge Fund Holders: 53
Lockheed Martin Corporation (NYSE:LMT) is a security and aerospace company engaged in the research, design, development, and sustainment of technology systems, products, and services worldwide. It operates through four segments – Aeronautics, Missiles and Fire Control, Rotary and Mission Systems, and Space. On December 16, Lockheed Martin Corporation (NYSE:LMT) was awarded a $302.24 million contract for the proof of manufacture, production, spares, production support material, and engineering support for components related to the MK 48 heavyweight torpedo. The Naval Air Systems Command is contracting the activity.
Citi analyst Jason Gursky initiated coverage of Lockheed Martin Corporation (NYSE:LMT) on December 8 with a Buy rating and a $546 price target. The analyst is positive on the growth outlook for Department of Defense spending through the remainder of the decade and the diversified nature of Lockheed Martin Corporation (NYSE:LMT)’s capabilities across all domains.
According to Insider Monkey’s Q3 data, Lockheed Martin Corporation (NYSE:LMT) was part of 53 hedge fund portfolios, compared to 55 in the prior quarter. Rajiv Jain’s GQG Partners is the biggest stakeholder of the company, with 1.66 million shares worth $641 million.
Here is what Vltava Fund has to say about Lockheed Martin Corporation (NYSE:LMT) in its Q3 2022 investor letter:
“LMT is one of the world’s largest aerospace and defense companies. The war in Ukraine has reminded investors and the wider public just how important these companies are. The aerospace and defense industry in the USA is an established oligopoly. This means that a few large firms play a dominant role. While collectively they comprise an oligopoly, individually they often have monopoly positions in particular narrower segments. Their main counterparty is the US government, a key customer in what is known as a monopsonist position. This is a rather unusual situation, but one that is very advantageous for companies such as LMT.
LMT has a strong and long-term sustainable competitive advantage ensuing from the fact that its products are developed and manufactured at an extremely high level of technology and complexity, its development and contract cycles are measured in decades, and the costs for the government to switch to alternative suppliers are high. Moreover, part of the production is classified as secret, which further takes the wind out of the sails of potential competitors. This results in a very high return on capital and admittedly a slowly but steadily growing business.
In most NATO countries, which are LMT’s customers, defense outlays are based upon the size of GDP. This is currently growing very fast in nominal terms due to inflation in most countries. A number of countries have also announced significant increases in defense budgets, whether it be Germany, which aims to get to the NATO-agreed 2% of GDP, or Poland, which wants to spend more than twice as much on defense…” (Click here to see the full text)
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3. Honeywell International Inc. (NASDAQ:HON)
Number of Hedge Fund Holders: 53
Honeywell International Inc. (NASDAQ:HON) operates as a diversified technology and manufacturing company worldwide. The company’s Aerospace segment offers auxiliary power units, propulsion engines, integrated avionics, environmental control and electric power systems, engine controls, flight safety, navigation hardware, satellite and space components, aircraft wheels and brakes, and maintenance services. Honeywell International Inc. (NASDAQ:HON) is one of the best aerospace stocks to consider.
On December 1, Honeywell International Inc. (NASDAQ:HON) announced that it is expanding its partnership with Nexceris, a manufacturer of Li-ion Tamer lithium-ion gas detection solutions, to improve safety of electric vehicle batteries. The companies will collaborate with top global auto manufacturers to provide superior gas detection solutions in EV battery packs which would allow for early intervention and make electric vehicles safer.
Citi analyst Andrew Kaplowitz on December 9 raised the price target on Honeywell International Inc. (NASDAQ:HON) to $248 from $213 and reiterated a Buy rating on the shares. The analyst noted that megatrends and “still emerging fiscal tailwinds” should help moderate potential downside for industrials in a weak macroeconomic backdrop.
According to Insider Monkey’s data, 53 hedge funds were long Honeywell International Inc. (NASDAQ:HON) at the end of Q3 2022, compared to 42 funds in the prior quarter. Ric Dillon’s Diamond Hill Capital is a significant position holder in the company, with 1.13 million shares worth $190.2 million.
Here is what ClearBridge Investments has to say about Honeywell International Inc. (NASDAQ:HON) in its Q1 2021 investor letter:
“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 also lagged in the quarter after previously generating strong returns over extended periods.”
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2. Raytheon Technologies Corporation (NYSE:RTX)
Number of Hedge Fund Holders: 55
Raytheon Technologies Corporation (NYSE:RTX) is one of the top aerospace stocks to monitor. The aerospace and defense company provides systems and services for the commercial, military, and government customers worldwide. It operates through four segments – Collins Aerospace Systems, Pratt & Whitney, Raytheon Intelligence & Space, and Raytheon Missiles & Defense. On December 12, Raytheon Technologies Corporation (NYSE:RTX) announced that its board has authorized a new share buyback program of up to $6 billion.
On December 8, Citi analyst Jason Gursky initiated coverage of Raytheon Technologies Corporation (NYSE:RTX) with a Neutral rating and a $104 price target. The analyst is constructive on the outlook for Raytheon Technologies Corporation (NYSE:RTX) and both its commercial and defense end markets over the long-term.
According to Insider Monkey’s Q3 data, 55 hedge funds were bullish on Raytheon Technologies Corporation (NYSE:RTX), compared to 45 funds in the prior quarter. Ken Fisher’s Fisher Asset Management is the largest stakeholder of the company, with 8.5 million shares worth $702 million.
Carillon Tower made the following comment about Raytheon Technologies Corporation (NYSE:RTX) in its Q3 2022 investor letter:
“Raytheon Technologies Corporation (NYSE:RTX) announced strong results led by strength in its commercial segment, but weakness in its defense business led to investor consternation. Management guided to a recovery in this segment, citing both transitory supply chain issues and continued strong demand.”
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1. TransDigm Group Incorporated (NYSE:TDG)
Number of Hedge Fund Holders: 63
TransDigm Group Incorporated (NYSE:TDG) was founded in 1993 and is based in Cleveland, Ohio. The company designs, produces, and supplies aircraft components in the United States and internationally. TransDigm Group Incorporated (NYSE:TDG) operates through Power & Control, Airframe, and Non-Aviation segments. It is one of the premier aerospace stocks to invest in.
On November 10, TransDigm Group Incorporated (NYSE:TDG) reported a Q3 non-GAAP EPS of $5.50 and a revenue of $1.51 billion, outperforming Wall Street estimates by $0.27 and $10 million, respectively. In FY 2023, net sales are anticipated to be in the range of $5.99 billion to $6.19 billion, versus a consensus of $6.06 billion.
Morgan Stanley analyst Kristine Liwag on December 12 maintained an Overweight rating on TransDigm Group Incorporated (NYSE:TDG) but lowered the price target on the shares to $765 from $801 as she assessed where aerospace companies are in their recovery journey versus their historical valuation range and rolled forward her valuations among those in the group. She remains bullish on the ongoing aerospace recovery next year, noting that global air traffic is now at nearly 75% of pre-COVID-19 levels as of September and full normalization is “likely” in 2023.
According to Insider Monkey’s data, 63 hedge funds were long TransDigm Group Incorporated (NYSE:TDG) at the end of Q3 2022, compared to 66 funds in the prior quarter. Sharlyn C. Heslam’s Stockbridge Partners is the largest stakeholder of the company, with 1.60 million shares worth $841 million.
Here is what Vulcan Value Partners has to say about TransDigm Group Incorporated (NYSE:TDG) in its Q2 2022 investor letter:
“TransDigm Group Inc. is an aerospace manufacturing firm that provides highly engineered, niche components for use on commercial and military aircraft. The vast majority of the company’s profits come from aftermarket sales of sole-sourced products. The company produces high levels of free cash flow and has an effective, shareholder-oriented management team who are good capital allocators. Despite the company’s strong results during the quarter and solid outlook, its stock price declined.”
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Disclosure: None. 11 Best Aerospace Stocks To Buy is originally published on Insider Monkey.
