In this article, we discuss the 10 defense stocks to buy as geopolitical tensions rise.
The United States and Europe are set to raise military spending in the coming months amid the Russian invasion of Ukraine. Germany has already announced a $112 billion increase in defense spending while the Pentagon is set to request the administration of United States President Biden to hike the defense budget to $773 billion for 2023, an increase of 4.4% from the 2022 budget and up more than 8% compared to initial requests of $715 billion. As a result, defense stocks have been trending higher on the stock market.
Defense Stocks Climb in US and Europe
Exchange-traded funds (ETFs) that track defense stocks are also climbing. iShares U.S. Aerospace & Defense ETF, one of the largest defense-focused ETFs with 33 equity holdings, has soared by over 5% since Russian President Putin ordered troops into Ukraine. Other defense stocks like Honeywell International Inc. (NASDAQ:HON), Raytheon Technologies Corporation (NYSE:RTX), and Lockheed Martin Corporation (NYSE:LMT) are also spiking, with the latter two registering increases of 8% and 18% respectively.
Although the US and EU have so far ruled out boots on the ground, there has been lots of military assistance promised. The weapons being sent for resistance efforts in Kyiv include Javelin anti-tank missiles and Stinger anti-aircraft missiles, manufactured by leading defense firms in the US. The North Atlantic Treaty Organization (NATO) is also beefing up military presence in countries near Ukraine. Even Japan is likely to beef up military spending to more than 1% of the GDP for the first time in nearly six decades.
Photo by Joel Rivera-Camacho on Unsplash
Our Methodology
The companies that operate in the defense sector and have been on the radar of market experts amid the Russian invasion of Ukraine were selected for the list. 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 to Buy As Geopolitical Tensions Rise
10. Astronics Corporation (NASDAQ:ATRO)
Number of Hedge Fund Holders: 17
Astronics Corporation (NASDAQ:ATRO) markets products for the aerospace, defense, and electronics industries. In September last year, the company received a follow-on order from Collins Aerospace worth $19 million for jet connectivity equipment. The order will be delivered this year. Initially, Collins Aerospace had placed an order worth $11 million worth of equipment in February 2021. The firm posted a revenue of over $115 million in the fourth quarter of 2021.
Astronics Corporation (NASDAQ:ATRO) makes and sells products for airframe manufacturers. These manufacturers serve various government and private organizations, including the United States Department of Defense. The firm also sells inflight entertainment products.
At the end of the fourth quarter of 2021, 17 hedge funds in the database of Insider Monkey held stakes worth $82 million in Astronics Corporation (NASDAQ:ATRO), up from 13 the preceding quarter worth $79 million.
Among the hedge funds being tracked by Insider Monkey, New York-based investment firm Royce & Associates is a leading shareholder in Astronics Corporation (NASDAQ:ATRO) with 1.5 million shares worth more than $18 million.
Just like Honeywell International Inc. (NASDAQ:HON), Raytheon Technologies Corporation (NYSE:RTX), and Lockheed Martin Corporation (NYSE:LMT), Astronics Corporation (NASDAQ:ATRO) is one of the stocks that elite investors are buying.
In its Q1 2020 investor letter, Diamond Hill Capital, an asset management firm, highlighted a few stocks and Astronics Corporation (NASDAQ:ATRO) was one of them. Here is what the fund said:
“Aerospace and defense industry supplier Astronics Corporation (NASDAQ:ATRO) underperformed amid a changing near-term economic outlook as a result of the COVID-19 pandemic. We believe Astronics Corporation (NASDAQ:ATRO) has enough liquidity to make it through the current downturn and eventually return to a more normal level of business activity.”
9. Aerojet Rocketdyne Holdings, Inc. (NYSE:AJRD)
Number of Hedge Fund Holders: 30
Aerojet Rocketdyne Holdings, Inc. (NYSE:AJRD) is an aerospace and defense firm. On February 8, Jefferies analyst Greg Konrad upgraded the stock to Buy from Hold with a price target of $47, noting the growth drivers for the firm in the GBSD and Hypersonics markets. The analyst also cited the strong balance sheet of the firm in a bullish analysis that forecast 20% EPS accretion in the best case.
Private equity companies are reportedly interested in acquiring Aerojet Rocketdyne Holdings, Inc. (NYSE: AJRD) after defense giant Lockheed Martin failed to close a merger deal with the firm. Boardroom tussles at Aerojet are the primary reasons behind the sale.
Among the hedge funds being tracked by Insider Monkey, New York-based investment firm Steel Partners is a leading shareholder in Aerojet Rocketdyne Holdings, Inc. (NYSE:AJRD) with 3.9 million shares worth more than $184 million.
At the end of the fourth quarter of 2021, 30 hedge funds in the database of Insider Monkey held stakes worth $885 million in Aerojet Rocketdyne Holdings, Inc. (NYSE: AJRD), compared to 33 the preceding quarter worth $765 million.
8. Northrop Grumman Corporation (NYSE:NOC)
Number of Hedge Fund Holders: 33
Northrop Grumman Corporation (NYSE:NOC) is a Virginia-based aerospace and defense firm. The company stands to gain from the Russian invasion of Ukraine as European nations, including Germany, step up military spending in the wake of threats from Moscow. Berlin has already announced a $112 billion boost in defense spending and other European nations are expected to follow suit.
On January 28, Susquehanna analyst Charles Minervino maintained a Positive rating on Northrop Grumman Corporation (NYSE:NOC) stock and raised the price target to $437 from $416, underlining that the shareholder-friendly capital return policy and US defense priorities were strong enough to offset some short-term headwinds for the company.
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.
Among the hedge funds being tracked by Insider Monkey, Texas-based investment firm Yacktman Asset Management is a leading shareholder in Northrop Grumman Corporation (NYSE:NOC) with 442,198 shares worth more than $171 million.
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.”
7. Textron Inc. (NYSE:TXT)
Number of Hedge Fund Holders: 35
Textron Inc. (NYSE:TXT) operates in the aircraft, defense, industrial, and finance sectors. The company has paid a dividend to shareholders consistently for more than three decades. On February 23, it declared a quarterly dividend of $0.02 per share, in line with previous. The forward yield was 0.12%. The firm also posted a revenue of more than $3.3 billion in the fourth quarter of 2021. The EPS was $0.94 per share.
One of the benefits of Textron Inc. (NYSE:TXT) stock over other names in the defense sector is that the company has a diversified business model where setbacks in one sector of the economy are offset by performances in other sectors.
At the end of the fourth quarter of 2021, 35 hedge funds in the database of Insider Monkey held stakes worth $1 billion in Textron Inc. (NYSE:TXT), up from 31 in the previous quarter worth $1.1 billion.
Among the hedge funds being tracked by Insider Monkey, Boston-based investment firm Adage Capital Management is a leading shareholder in Textron Inc. (NYSE:TXT) with 4.3 million shares worth more than $339 million.
6. HEICO Corporation (NYSE:HEI)
Number of Hedge Fund Holders: 40
HEICO Corporation (NYSE:HEI) makes and sells aerospace, defense, and electronic products. On January 7, Truist analyst Michael Ciarmoli upgraded the stock to Buy from Hold and raised the price target to $182 from $135, noting the company continued to be a “differentiated supplier” in the aero sector with a sustained track record of success and consistency, as well as one of the leading merger and acquisition strategies in the industry.
On February 10, HEICO Corporation (NYSE:HEI) announced that it had agreed to acquire a 74% stake in New York-based specialty defense spares distributor Pioneer Industries. The purchase expands the portfolio of products offered by HEICO.
Among the hedge funds being tracked by Insider Monkey, China-based investment firm Gobi Capital is a leading shareholder in HEICO Corporation (NYSE:HEI) with 925,879 shares worth more than $118 million.
At the end of the fourth quarter of 2021, 40 hedge funds in the database of Insider Monkey held stakes worth $660 million in HEICO Corporation (NYSE:HEI), up from 35 in the previous quarter worth $719 million.
Along with Honeywell International Inc. (NASDAQ:HON), Raytheon Technologies Corporation (NYSE:RTX), and Lockheed Martin Corporation (NYSE:LMT), HEICO Corporation (NYSE:HEI) is one of the stocks that institutional investors have their eye on.
5. Lockheed Martin Corporation (NYSE:LMT)
Number of Hedge Fund Holders: 42
Lockheed Martin Corporation (NYSE:LMT) is a security and aerospace firm. Elite hedge funds hold large stakes in the company. 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.
On February 28, Wolfe Research analyst Michael Maugeri upgraded Lockheed Martin Corporation (NYSE:LMT) stock to Outperform from Peer Perform with a price target of $467, noting that stronger international military spending in the wake of the Russian invasion of Ukraine would help lift defense stocks higher in the coming months.
At the end of the fourth quarter of 2021, 42 hedge funds in the database of Insider Monkey held stakes worth $976 million in Lockheed Martin Corporation (NYSE:LMT), compared to 51 in the previous quarter worth $1.2 billion.
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, 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 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.”
4. Howmet Aerospace Inc. (NYSE:HWM)
Number of Hedge Fund Holders: 42
Howmet Aerospace Inc. (NYSE:HWM) provides advanced engineering solutions for the aerospace industry. In early December, Morgan Stanley analyst Kristine Liwag had initiated coverage of the stock with an Overweight rating and a price target of $40, noting that the firm was poised to benefit from the meaningful upside in earnings from higher aircraft production rates in the coming months.
Howmet Aerospace Inc. (NYSE:HWM) continues to be one of the top defense stocks on Wall Street. At the end of the fourth quarter of 2021, 42 hedge funds in the database of Insider Monkey held stakes worth $3.5 billion in Howmet Aerospace Inc. (NYSE:HWM), compared to 44 in the preceding quarter worth $3.4 billion.
In its Q4 2020 investor letter, FPA Crescent Fund, an asset management firm, highlighted a few stocks and Howmet Aerospace Inc. (NYSE:HWM) was one of them. Here is what the fund said:
“Howmet saw its stock price decline by around two-thirds from their Q1 2020 highs. Howmet’s price increased about three times from its low and ended the year at its all-time high. The value of its necessary and large market share business did not fluctuate as much as its stock price.”
3. General Dynamics Corporation (NYSE:GD)
Number of Hedge Fund Holders: 48
General Dynamics Corporation (NYSE:GD) is an aerospace and defense firm. Hedge funds have been piling into the stock 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.
On February 4, Morgan Stanley analyst Kristine Liwag upgraded General Dynamics Corporation (NYSE:GD) stock to Equal Weight from Underweight and raised the price target to $215 from $210, noting that improved aircraft deliveries in 2022 would ramp up the compound annual growth rate of the firm to near 18%.
2. Raytheon Technologies Corporation (NYSE:RTX)
Number of Hedge Fund Holders: 50
Raytheon Technologies Corporation (NYSE:RTX) operates as an aerospace and defense firm. On February 16, Wolfe Research analyst Michael Maugeri maintained an Outperform rating on the stock and raised the price target to $111 from $110, identifying the company as a top pick in the aerospace sector given the “underappreciated aftermarket opportunity and growing free cash flow” of the firm.
The hedge fund sentiment around Raytheon Technologies Corporation (NYSE:RTX) is also positive. 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.
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 is a wonderful example of attractive investments in this sector.”
1. Honeywell International Inc. (NASDAQ:HON)
Number of Hedge Fund Holders: 51
Honeywell International Inc. (NASDAQ:HON) is a diversified technology and manufacturing firm. It is one of the favorite defense stocks in the hedge fund universe. 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.
On March 4, Deutsche Bank analyst Nicole DeBlase raised the price target on Honeywell International Inc. (NASDAQ:HON) stock to $243 from $237 and kept a Buy rating on the shares, appreciating the 2022 buyback plan and improved long-term targets of the company.
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 also lagged in the quarter after previously generating strong returns over extended periods.”
You can also take a peek at 10 Green Energy Stocks to Watch As Europe Cuts Reliance on Russia and 12 Best Artificial Intelligence Stocks To Invest In Right Now.
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Disclosure. None. 10 Defense Stocks to Buy As Geopolitical Tensions Rise is originally published on Insider Monkey.
