In this piece, we will take a look at the ten best defense stocks to buy that are too cheap to ignore.
The defense sector in America is one of the most advanced in the world, and it has enabled the country to retain its military edge globally for the better part of this century. The U.S. defense budget sat at a whopping $801 billion in 2021, as it continued to be larger than the next nine countries on the list. On the back of this large spending, which has also drawn criticisms from several quarters, research reports paint a rosy growth trajectory for the defense industry.
One report, which comes courtesy of Research and Markets, estimates that the defense sector will have a compounded annual growth rate (CAGR) of 0.5% going forward into 2027. While this might appear small on the surface, the industry is far more mature and developed than those with high growth rates. The research firm attributes the bulk of this growth to the Air Force, as the service plans to spend on a wide variety of aircraft such as the F-35, F15-EX, and KC-46A tanker. Readers should keep in mind that these are only the aircraft that have been declassified by the Pentagon, and whispers on the street have suggested that a new sixth generation fighter aircraft to supersede the F-22 Raptor is also under development.
Speaking of the Air Force, Mordor Intelligence turns its guns on this segment, in particular, to estimate that the U.S. aerospace and defense market will grow at a much stronger CAGR of 2.37% to sit at a whopping $491 billion by 2027 end. A key portion of this growth will belong to the National Aeronautics and Space Administration (NASA) whose budget allocations have grown over the last seven years, and which is also planning to develop a sustainable presence on the Moon through the Artemis program. Under Artemis, NASA has already awarded a multi-billion dollar contract to Space Exploration Technologies Corporation (SpaceX) for a lunar lander that will land astronauts on the Moon’s surface.
Finally, Research and Markets takes a look at the global defense market to wager that the sector was worth $452 billion in 2021, and between then and 2026, it will grow at a 5.8% CAGR to sit at $605 billion.
In this piece, we will take a break from focusing on companies that lead the industry, and instead focus on defense stocks that are trading at affordable prices. Some of the names on our list are Ducommun Incorporated (NYSE:DCO), Kratos Defense & Security Solutions, Inc. (NASDAQ:KTOS), and Embraer S.A. (NASDAQ:ERJ).
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Our Methodology
We took a painstaking look at the defense industry to identify its various sub-sectors and then which firms have low share prices. The firms were then analyzed through their financial performance, market strength, technological advantages, and criticality in the defense supply chain. They were then ranked through Insider Monkey’s Q2 2022 survey of 895 hedge funds.
Defense Stocks to Buy That Are Too Cheap to Ignore
10. V2X, Inc. (NYSE:VVX)
Share Price as of October 13, 2022: $36.78
Number of Hedge Fund Holders: N/A
V2X, Inc. (NYSE:VVX) is an American aerospace and defense company that provides smart solutions with a focus on productivity and performance. The company is headquartered in Colorado Springs, Colorado, the United States.
V2X, Inc.’s free cash flow has consistently grown over the past five years and the latest trailing twelve month reading marks an 18% growth. The firm’s latest quarter saw it bring in $498 million in revenue and $1.41 in non-GAAP earnings per share, with the revenue marking a 5.8% annual growth.
Following the earnings report, Stifel upgraded the company’s share price target and share price ratings. The price was raised by $3 to sit at $45 and the rating was upgraded to Buy from Hold in August 2022 as the investment firm was impressed by the firm’s revenue guidance for 2022. V2X, Inc. expects to earn $3.6 billion in revenue this year and it has contracts with agencies such as NASA, which procures $500 million of services from the firm.
Along with Kratos Defense & Security Solutions, Inc., Ducommun Incorporated, and Embraer S.A., V2X, Inc. is a great cheap defense stock.
9. Air Industries Group (NYSE:AIRI)
Share Price as of October 13, 2022: $5.20
Number of Hedge Fund Holders: 2
Air Industries Group (NYSE:AIRI) is an American defense company that provides a wide variety of complex structural parts and assemblies for jet aircraft and helicopters. These include landing gears, arresting gears, engine mounts, flight controls, and throttle quadrants. The firm s headquartered in Bay Shore, New York.
Air Industries Group’s latest fiscal quarter saw the firm bring in $14 million in revenue which marked 16% in growth. At the same time, its gross profit and operating income stood at $2.4 million and $250,000 and marked 17% and 20% growth, respectively.
One of Air Industries Group’s largest customers is the DoD, and the firm provides components for the F-35 aircraft. Over its lifetime, 3,000 units of this aircraft are estimated to be built, which provides a stable revenue flow for the firm if it continues the contracts. Insider Monkey’s Q2 2022 survey of 895 hedge funds saw two as having held Air Industries Group’s shares.
Jim Simons’ Renaissance Technologies is the company’s largest investor in our database with a $15,000 stake that comes via 21,500 shares.
8. Taylor Devices, Inc. (NASDAQ:TAYD)
Share Price as of October 13, 2022: $10.8
Number of Hedge Fund Holders: 2
Taylor Devices, Inc. (NASDAQ:TAYD) is an American company headquartered in North Tonawanda, New York. The firm manufactures and sells a variety of products such as fluidicshoks which are used by the defense segment as shock absorbers, and vibration dampers used in aircraft and ships.
Taylor Devices, Inc.’s latest fiscal quarter saw the firm bring in $9 million in revenue for a 24% annual growth and $0.29 in GAAP earnings per share. A key point about the company is that it is debt free, and its latest balance sheet shows that it has a cash balance of $21 million, providing it with sufficient cushion for its operating expenses which stood at $1.8 million as of the latest quarter.
Additionally, 36% of Taylor Devices, Inc.’s sales are for the aerospace and defense segment, and the vast majority (82%) come from within the U.S. By the end of this year’s second quarter, two out of the 895 hedge funds polled by Insider Monkey had invested in the company.
Out of these, Jim Simons’ Renaissance Technologies is Taylor Devices, Inc.’s largest investor through a $338,000 stake that comes via 38,862 shares.
7. Sypris Solutions, Inc. (NASDAQ:SYPR)
Share Price as of October 13, 2022: $1.97
Number of Hedge Fund Holders: 3
Sypris Solutions, Inc. (NASDAQ:SYPR) is an American company that sells a variety of products to the defense industry such as circuit card assembly services for radars, navigation systems, weapons systems, and ground systems. It is headquartered in Louisville, Kentucky.
Sypris Solutions, Inc.’s largest customer is the aerospace giant Northrop Grumman which represents 22% of its revenue. The company’s business model allows the firm to rake in significant prepayments from customers to let it set up its equipment for production runs.
Sypris Solutions, Inc.’s latest quarter saw its backlog jump by a whopping 77% annually, which was fueled by its electronics components for the defense industry. The company also won a follow on contract worth multi-million dollars from the Pentagon for a single seat, all weather, multirole, stealth aircraft, which according to management will be purchased by the Defense Department until 2044.
Insider Monkey’s Q2 2022 survey of 895 hedge funds revealed that three had owned Sypris Solutions, Inc.’s shares.
Out of these, Jim Simons’ Renaissance Technologies is Sypris Solutions, Inc.’s largest investor. It owns 894,532 shares that are worth $2 million.
6. Intevac, Inc. (NASDAQ:IVAC)
Share Price as of October 13, 2022: $4.36
Number of Hedge Fund Holders: 11
Intevac, Inc. (NASDAQ:IVAC) is an American company that manufactures and sells thin film processing systems for small substrates. The firm is headquartered in Santa Clara, California. Its defense offerings include high-sensitivity night vision sensors, cameras and systems.
Intevac, Inc.’s latest quarter saw the firm beat revenue forecasts and post $9 million in revenue. At the same time, the firm posted strong gross margins of 48% and received $22 million in new orders that saw its backlog grow to $100 million. It expects to bring in $200 million in revenue through its hard disk segment through 2025.
Intevac, Inc.’s strong order backlog was at a 12 year high during the quarter. By the end of this year’s second quarter, 11 out of the 895 hedge funds polled by Insider Monkey had held a stake in the company.
Intevac, Inc.’s largest investor is Chuck Royce’s Royce & Associates which owns 2.2 million shares that are worth $10 million.
Ducommun Incorporated, Kratos Defense & Security Solutions, Inc., and Embraer S.A. are met by Intevac, Inc. in our list of top cheap defense stocks.
5. Embraer S.A. (NASDAQ:ERJ)
Share Price as of October 13, 2022: $8.85
Number of Hedge Fund Holders: 11
Embraer S.A. is a Brazilian company that manufactures and sells aircraft systems in North America, Brazil, Europe, and globally. The firm’s products include radars and communications systems and it is headquartered in Sao Paulo, Brazil.
Embraer S.A. is the world’s largest jet manufacturer, after having delivered 150 seats over the past decade. It is also one of the most prominent aviation firms in the world, as it has partnered up with big ticket names such as Thales Alenia and BAE Systems. To top things up, Embraer S.A. also has a fortress balance sheet with no debt and $176 million in cash as of Q2 2022.
Insider Monkey’s Q2 2022 survey of 895 hedge funds saw 11 investors hold Embraer S.A.’s shares. Wolfe Research set a $14 share price target for the company in October 2022, as it stated that costs and airline orders present a huge opportunity.
Embraer S.A.’s largest investor is Paul Marshall and Ian Wace’s Marshall Wace LLP which owns 3.5 million shares that are worth $31 million.
4. Moog Inc. (NYSE:MOG-A)
Share Price as of October 13, 2022: $76.32
Number of Hedge Fund Holders: 11
Moog Inc. (NYSE:MOG-A) is an American company that provides flight controls for aircraft, spacecraft, launch vehicles, combat vehicles, and space vehicles. It is headquartered in East Aurora, New York.
Moog Inc.’s third fiscal quarter saw its revenue grow by 9% to sit at $773 million. During the same time period, its adjusted earnings per share (EPS) grew by 44% annually to sit at $1.61. The company also increased its full year EPS guidance by 15 cents to $5.65. Finally, by the end of this year, the firm expects its revenues to grow by 6% and cross $3 billion.
Revenue for Moog Inc.’s Space and Defense segment stood at $224 million in the year, as it enjoyed a 9% growth. As this year’s June quarter ended, 11 out of the 895 hedge funds polled by Insider Monkey had invested in Moog Inc..
Moog Inc.’s largest investor is D.E. Shaw’s D E Shaw which owns 351,428 shares that are worth $27 million.
3. AAR Corp. (NYSE:AIR)
Share Price as of October 13, 2022: $39.39
Number of Hedge Fund Holders: 19
AAR Corp. (NYSE:AIR) is an American aviation company that is headquartered in Wood Dale, Illinois. The firm provides the defense sector with products such as engine and air frame parts, alongside providing inventory management services.
AAR Corp. was hit hard by the coronavirus pandemic as the global aviation industry saw its demand sapped. However, the firm has started to recover now, and its fiscal year 2022 saw revenues grow by 10.3%, with sales to its commercial customers growing by 34%.
AAR Corp. also signed an important contract with the Norwegian defense forces earlier this year to manage supply parts and forecast demand. Additionally, another big contract came from the U.S. Air Force which saw AAR Corp. win a $173 million contract for new cargo aluminum pallets. By the end of this year’s second quarter, 19 out of the 895 hedge funds polled by Insider Monkey had bought the company’s shares.
AAR Corp.’s largest investor in our hedge fund database is David Rosen’s Rubric Capital Management which owns 1.1 million shares that are worth $46 million.
2. Kratos Defense & Security Solutions, Inc. (NASDAQ:KTOS)
Share Price as of October 13, 2022: $9.66
Number of Hedge Fund Holders: 20
Kratos Defense & Security Solutions, Inc. is a government contractor that serves the needs of the Pentagon. The firm provides products and services such as satellite communications, turbine technologies, and rocket support services. It is headquartered in San Diego, California.
Kratos Defense & Security Solutions, Inc.’s latest earnings report saw the firm grow its revenue by $224 million and beat the earnings per share (EPS) guidance. Additionally, the firm’s management sees a huge opportunity pipeline of $9 billion. Kratos Defense & Security Solutions, Inc. also manufactures some of the most advanced military drones in the world, with its XQ-58A Valkyrie drone currently under development being one of the few fully stealthy drones in the world.
The drone segment is crucial given the Pentagon’s over the horizon strategy that has gained prevalence under the Biden Administration. Kratos Defense & Security Solutions, Inc. has also been on a contract winning spree this year, with the firm winning a $174 million contract from the U.S. Navy in September 2022.
By the end of this year’s second quarter, 20 out of the 895 hedge funds polled by Insider Monkey had held a stake in the company.
Kratos Defense & Security Solutions, Inc.’s largest investor is Catherine D. Wood’s ARK Investment Management which owns 8.2 million shares that are worth $118 million.
1. Ducommun Incorporated (NYSE:DCO)
Share Price as of October 13, 2022: $41.96
Number of Hedge Fund Holders: 23
Ducommun Incorporated is an aerospace and defense engineering and manufacturing services provider. The firm makes and sells products such as circuit boards, and avionics racks. radar enclosures, and surge protectors. The company is headquartered in Santa Ana, California, the United States.
Ducommun Incorporated has some of the strongest current and future growth estimates in the defense industry. The firm is estimated to grow its revenues during its current fiscal year by 21%, and at an average of 15.8% for the next five years. Ducommun Incorporated also has the highest upside share price reward and the lowest downside risk among its peers.
Ducommun Incorporated grew its revenue by 9% during its second fiscal quarter, and its backlog grew by 50% to stand at $419 million at quarter end. Insider Monkey’s Q2 2022 survey of 895 hedge funds saw 23 investors in the firm.
Out of these, Chuck Royce’s Royce & Associates is Ducommun Incorporated’s largest investor. It owns 399,402 shares that are worth $17 million.
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This article is originally published at Insider Monkey.
