5 Best Defense Stocks To Buy Now

In this article, we will discuss the 5 best defense stocks to buy now. If you want to explore similar stocks, you can go to 12 Best Defense Stocks To Buy Now.

5. Northrop Grumman Corporation (NYSE:NOC)

Number of Hedge Fund Holders: 49

At the end of the fourth quarter of 2022, 49 hedge funds were long Northrop Grumman Corporation (NYSE:NOC) and held stakes worth $1.53 billion in the company. This is compared to 46 positions in the preceding quarter with stakes worth $1.05 billion. As of December 31, GQG Partners is the leading shareholder in the company and has a stake worth $428 million.

On January 31, Wells Fargo analyst Matthew Akers raised his price target on Northrop Grumman Corporation (NYSE:NOC) to $470 from $460 and maintained an Equal Weight rating on the shares. As of March 21, the stock is trading at a PE multiple of 14x and is offering a forward dividend yield of 1.54%. Northrop Grumman Corporation (NYSE:NOC) is placed fifth among the best defense stocks to buy now.

Here is what LRT Capital had to say about Northrop Grumman Corporation (NYSE:NOC) in its October 2022 investor letter:

“Based in Virginia, Northrop Grumman Corporation (NYSE:NOC) is one of the world’s largest defense contractors with annual revenue 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 approximate 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)

4. Raytheon Technologies Corporation (NYSE:RTX)

Number of Hedge Fund Holders: 51

Raytheon Technologies Corporation (NYSE:RTX) has gained 17.45% over the past 6 months, as of March 21, and is offering a forward dividend yield of 2.26%. The stock is one of the best defense stocks to buy now according to analysts and hedge funds. This January, Citi analyst Jason Gursky raised his price target on Raytheon Technologies Corporation (NYSE:RTX) to $106 from $104 and maintained a Neutral rating on the shares.

At the close of Q4 2022, Raytheon Technologies Corporation (NYSE:RTX) was spotted on 51 hedge funds’ portfolios. These funds held positions worth $1.81 billion in the company, up from $1.61 million in the preceding quarter when 55 hedge funds held stakes in the company.

As of December 31, Balyasny Asset Management is the leading shareholder in Raytheon Technologies Corporation (NYSE:RTX) and has a stake worth $229.9 million.

Here is what Carillon Tower had to say 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.”

3. Lockheed Martin Corporation (NYSE:LMT)

Number of Hedge Fund Holders: 53

Analysts see promising upside to Lockheed Martin Corporation (NYSE:LMT). This January,  DZ Bank analyst Robert Czerwensky upgraded Lockheed Martin Corporation (NYSE:LMT) to Buy from Hold and reiterated his price target of $523 on the stock.

Over the past 6 months Lockheed Martin Corporation (NYSE:LMT) has returned 12.48% to investors, as of March 21, and the stock is offering a forward dividend yield of 2.52%. Lockheed Martin Corporation (NYSE:LMT) is placed third on our list of the best defense stocks to buy now.

Lockheed Martin Corporation (NYSE:LMT) was spotted on 53 hedge funds’ portfolios at the close of Q4 2022. These funds held collective positions worth $2.13 billion in the company, up from $1.69 billion in the preceding quarter with 53 positions. As of December 31, GQG Partners is the most prominent stockholder in Lockheed Martin Corporation (NYSE:LMT) and holds a stake worth $559.9 million.

Here is what Vltava Fund had to say about Lockheed Martin Corporation (NYSE:LMT) in its Q3 2022 investor letter:

“LMT is one of the world’s largest aerospace and defence companies. The war in Ukraine has reminded investors and the wider public just how important these companies are. The aerospace and defence 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, defence 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 defence 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 defence…” (Click here to see the full text)

2. The Boeing Company (NYSE:BA)

Number of Hedge Fund Holders: 53

53 hedge funds disclosed having stakes in The Boeing Company (NYSE:BA) at the end of Q4 2022. The total value of these stakes amounted to $1.66 billion, up from $691.7 million in the previous quarter with 42 positions. The hedge fund sentiment for The Boeing Company (NYSE:BA) is positive and the stock is one of the best defense stocks to buy now.

As of March 21, shares of The Boeing Company (NYSE:BA) have soared 47.57% over the past 6 months. Wall Street likes the stock. This March, Susquehanna analyst Charles Minervino reiterated a Positive rating and his $245 price target on The Boeing Company (NYSE:BA).

As of December 31, Adage Capital Management is the largest shareholder in The Boeing Company (NYSE:BA) and has a stake worth $250 million.

Here is what Jackson Square Partners had to say about The Boeing Company (NYSE:BA) in its Q3 2022 investor letter:

“For The Boeing Company (NYSE:BA)–in short, we believe the worst of Boeing’s idiosyncratic issues are behind it, the airframe duopoly remains as protected as ever, and at current prices (where we’ve been adding), the stock is trading around ~6x FCF on 2025E. Current airframe production is running materially below expected travel demand over the next 5-10 years, creating a structural supply/demand imbalance that we believe will drive a decade of strong growth in civil aerospace from here. In our 2Q’22 correspondence, we described the attributes of our ideal growth ballast and said we hoped to convert another in the coming months – we believe Boeing checks all those boxes.”

1. TransDigm Group Incorporated (NYSE:TDG)

Number of Hedge Fund Holders: 71

On February 7, TransDigm Group Incorporated (NYSE:TDG) announced strong earnings for the first quarter of fiscal 2023. The company reported an EPS of $4.58 and outperformed EPS estimates by $0.28. The company generated a revenue of $1.40 billion, up 17% year over year and ahead of Wall Street consensus by $19.04 million. As of March 21, TransDigm Group Incorporated (NYSE:TDG) has returned 29.16% to investors over the past 6 months.

On February 28, BofA analyst Ronald Epstein raised his price target on TransDigm Group Incorporated (NYSE:TDG) to $890 from $770 and maintained a Buy rating on the shares. TransDigm Group Incorporated (NYSE:TDG) tops our list of the best defense stocks to buy now according to analysts and hedge funds.

At the close of the fourth quarter of 2022, 71 hedge funds were bullish on TransDigm Group Incorporated (NYSE:TDG) and disclosed stakes worth $5.93 billion in the company. This is compared to 63 hedge funds in the previous quarter with stakes worth $4.95 billion. The hedge fund sentiment for the stock is positive.

As of December 31, Stockbridge Partners is the top stockholder in TransDigm Group Incorporated (NYSE:TDG) and has disclosed a position worth $1 billion.

Here is what Vulcan Value Partners had to say about TransDigm Group Incorporated (NYSE:TDG) in its Q4 2022 investor letter:

“TransDigm Group Incorporated (NYSE:TDG) is an aerospace company making original equipment manufacturer and aftermarket parts for commercial and military aircraft. Approximately 90% of its net sales are from proprietary parts. TransDigm is the sole source provider for parts representing approximately 80% of its revenues. The company grew its EBITDA just over 20% in fiscal 2022 as air travel recovered from the COVID-19 downturn. We believe that the company will have another strong year in fiscal 2023.”

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