The United States may not officially be on a war footing. But since the Russian invasion of Ukraine, the Biden administration is pledging $350 million in military aid. And we're not the only ones. Our NATO allies are also making commitments to help Ukraine in its defense. And those commitments, along with that of the United States is likely to increase if the conflict escalates.
That means this is the time for opportunistic investors to pounce on defense stocks. These are stocks that support the military industrial complex in the United States. Even in peace time, the defense department commands a significant portion of the federal government's budget. So it's logical to presume that more money will be spent to assist in our defense as well as the defense of other countries.
This is an example of investing in the world that exists rather than the world you may want. These seven companies stand to see a sizable increase in revenue. This is likely to spill over into earnings which in turn will lead to a higher stock price over time.
Here are seven defense stocks that you should be considering right now.
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- Lockheed Martin
- Raytheon
- Boeing
- Northrop Grunman
- General Dynamics
- Axon Enterprise
- RBC Bearings
#1 - Lockheed Martin (NYSE:LMT)
Lockheed Martin (NYSE:LMT) stock is up 16% since February 8. Most of that growth has occurred since the Russian invasion began. Lockheed Martin manufactures the Javelin anti-tank missiles which multiple countries are pledging to provide to Ukraine. This serves as a good reminder to investors that although the defense contractor receives about 50% of its revenue from the United States, it also receives about one quarter of its budget from other countries
The company also recently announced the securing of an $870 million contract to modify the F-35A, F-35B, and F-35C aircraft.
LMT stock currently carries a Hold rating from the analysts tracked by MarketBeat. However, this is example of where timing provides important context. The company reported earnings in late January and despite a beat on the top and bottom lines, only about a third of the analysts boosted their price targets.
But since the Russian invasion, several more analysts have issued bullish price targets. And news sentiment has turned bullish as well. And the company’s dividend has increased for the last 20 years and currently pays investors $11.20 per share annually.
About Lockheed Martin
Lockheed Martin Corporation, a security and aerospace company, engages in the research, design, development, manufacture, integration, and sustainment of technology systems, products, and services worldwide. The company operates through Aeronautics, Missiles and Fire Control, Rotary and Mission Systems, and Space segments.
Read More - Current Price
- $489.02
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 9 Buy Ratings, 4 Hold Ratings, 1 Sell Ratings.
- Consensus Price Target
- $612.29 (25.2% Upside)
#2 - Raytheon (NYSE:RTX)
Raytheon is next on our list of defense stocks to buy. Raytheon (NYSE:RTX) manufactures the Stinger air-defense systems which are also being used in Ukraine. However, missile defense systems currently make up a significant part of the overall U.S. defense budget as the country assesses threats from countries that have nuclear capability. The company also has exposure to the commercial aerospace sector, but for now it’s the defense component that holds the most interest.
RTX stock jumped approximately 8% after the invasion but has given up most of those gains. One reason for that is a Department of Justice investigation into the company’s hiring practices.
Like Lockheed Martin, Raytheon has had two bullish price target upgrades since the invasion. The most prominent being from Morgan Stanley (NYSE:MS). The investment bank already had a bullish target of $118 but boosted it to $124. After the current selloff, that represents a 29% increase in RTX stock.
Investors can also count on Raytheon to pay a reliable dividend that currently yields just over 2%. The company has increased the dividend in each of the last 29 years.
About RTX
RTX Corporation, an aerospace and defense company, provides systems and services for the commercial, military, and government customers in the United States and internationally. It operates through three segments: Collins Aerospace, Pratt & Whitney, and Raytheon. The Collins Aerospace Systems segment offers aerospace and defense products, and aftermarket service solutions for civil and military aircraft manufacturers and commercial airlines, as well as regional, business, and general aviation, defense, and commercial space operations.
Read More - Current Price
- $116.48
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 7 Buy Ratings, 7 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $177.93 (52.8% Upside)
#3 - Boeing (NYSE:BA)
Next on our list of defense stocks is Boeing (NYSE:BA). And quite frankly, this is a company that can use good news no matter where it comes from. BA stock has been in a three-year tailspin that began with the 737 Max issues and continued with the pandemic shutdown of commercial airlines. And even as commercial air travel is expected to return, the company is facing the impact of sharply higher fuel costs.
But Boeing does have exposure to the defense industry. In fact, approximately 39% of the company’s fourth quarter 2021 revenue and 42% of the company’s full-year revenue came from the defense industry. The company continues to manufacture the military’s F/A-18 and F-15 fighter aircraft and just received the first order in what may be a $23 billion contract to build F-15EX fighters.
Analysts give BA stock a 51% upside with a $261.89 price target. One area for investors to watch will be if institutional investors begin to flow back into BA stock. For the last two years, investment has been flat.
About Boeing
The Boeing Company, together with its subsidiaries, designs, develops, manufactures, sells, services, and supports commercial jetliners, military aircraft, satellites, missile defense, human space flight and launch systems, and services worldwide. The company operates through Commercial Airplanes; Defense, Space & Security; and Global Services segments.
Read More - Current Price
- $177.35
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 13 Buy Ratings, 10 Hold Ratings, 1 Sell Ratings.
- Consensus Price Target
- $190.11 (7.2% Upside)
#4 - Northrop Grunman (NYSE:NOC)
Northrop Grunman (NYSE:NOC) is one of the big winners from the Russian invasion. NOC stock is up 24% in the last month. And that is allowing the company to shrug off a mixed earnings report. The company beat on the bottom line, but missed slightly on the top line. What was worse is that the company is showing a sequential and year-over-year (YOY) decline in revenue.
However, that appears to be coming to an end. In February, Northrop received a $341 million contract from the U.S. Space Force to develop a deep space radar. Space has been one of the company’s fastest growing sectors in recent years.
The defense contractor is also getting a lift from the U.S. Air Force which has announced plans to buy 80 to 100 B-21 stealth bombers to replace the aging Boeing B-52s. And the company will be replacing aging intercontinental nuclear ballistic missiles with a contract valued at up to $100 billion.
About Northrop Grumman
Northrop Grumman Corporation operates as an aerospace and defense technology company in the United States, Asia/Pacific, Europe, and internationally. The company's Aeronautics Systems segment designs, develops, manufactures, integrates, and sustains aircraft systems. This segment also offers unmanned autonomous aircraft systems, including high-altitude long-endurance strategic ISR systems and vertical take-off and landing tactical ISR systems; and strategic long-range strike aircraft, tactical fighter and air dominance aircraft, and airborne battle management and command and control systems.
Read More - Current Price
- $469.54
- Consensus Rating
- Hold
- Ratings Breakdown
- 5 Buy Ratings, 10 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $553.27 (17.8% Upside)
#5 - General Dynamics (NYSE:GD)
General Dynamics (NYSE:GD) stock is up 13% in the last month. This appears to be a case of investors showing renewed interest in the stock post invasion. For example, GD stock reached its 52-week high after Wells Fargo (NYSE:WFC) analyst Matthew Akers raised the company’s price target from $235 to $282.
The company posted mixed earnings in January and, like many defense contractors, was showing softer YOY revenue.
However, like many companies in this sector, General Dynamics is expected to benefit from a surge in spending. In 2020, the company received a $9.5 billion contract from the U.S. Navy to build the first Columbia-class sub and start work on the second sub.
In addition to the anticipated growth in revenue and earnings, GD stock looks like it’s becoming one of the best value stocks for 2022. The company is a dividend aristocrat having increased its dividend for the last 31 years. General Dynamics currently pays out a handsome $4.76 annual dividend that currently has a 1.95% yield.
About General Dynamics
General Dynamics Corporation operates as an aerospace and defense company worldwide. It operates through four segments: Aerospace, Marine Systems, Combat Systems, and Technologies. The Aerospace segment produces and sells business jets; and offers aircraft maintenance and repair, management, aircraft-on-ground support and completion, charter, staffing, and fixed-base operator services.
Read More - Current Price
- $263.64
- Consensus Rating
- Hold
- Ratings Breakdown
- 9 Buy Ratings, 9 Hold Ratings, 1 Sell Ratings.
- Consensus Price Target
- $314.88 (19.4% Upside)
#6 - Axon Enterprise (NASDAQ:AXON)
Axon Enterprise (NASDAQ:AXON) is the manufacturer of the TASER-branded weapons. The company is also making advances in body camera and taser technology which is likely to see growing demand. Plus, if the Biden administration is sincere in its calls to fund the police, Axon would be a likely beneficiary.
Furthermore the company is pledging to prioritize free cash flow (FCF) as part of the company’s “nimble and flexible” strategy that will have the company moving to subscription-based business model that will make its cash flow recurrent and consistent. If the company is successful in this transition, it would be a good step in making the company’s valuation look more attractive.
AXON stock is receiving bullish analyst sentiment with a price target of $193.38 and a 56% upside. Institutional ownership has leveled off since spiking in the second quarter of 2021. However, even as that growth has slowed, buyers outnumber sellers which suggests the big money is bullish.
About Axon Enterprise
Axon Enterprise, Inc develops, manufactures, and sells conducted energy devices (CEDs) under the TASER brand in the United States and internationally. It operates through two segments, Software and Sensors, and TASER. The company also offers hardware and cloud-based software solutions that enable law enforcement to capture, securely store, manage, share, and analyze video and other digital evidence.
Read More - Current Price
- $631.69
- Consensus Rating
- Buy
- Ratings Breakdown
- 13 Buy Ratings, 0 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $488.67 (22.6% Downside)
#7 - RBC Bearings (NYSE:RBC)
RBC Bearings (NASDAQ:ROLL) is the last of the defense stocks on our list. ROLL stock is up 8% in the last month, but is still trading near the bottom of its 52-week range. According to the Global Industry Analysts Inc. (GIA), the global bearings market is expected to reach $162.1 billion by 2026. And considering that this study was conducted prior to the Russian invasion, that number is likely to be low.
The company’s products will be in demand for the company’s and sectors that will benefit from the recently passed infrastructure bill. And the company’s products are also used in the renewable energy sector for wind turbines. The anticipated growth should help the company’s valuation look more attractive.
The company reported a beat on the top and bottom lines when it reported earnings in February. And analysts currently believe ROLL stock has a 22% upside with a price target of $233.60.
About RBC Bearings
RBC Bearings Incorporated manufactures and markets engineered precision bearings, components, and systems in the United States and internationally. It operates through two segments, Aerospace/Defense and Industrial. The company produces plain bearings with self-lubricating or metal-to-metal designs, including rod end bearings, spherical plain bearings, and journal bearings; roller bearings, such as tapered roller bearings, needle roller bearings, and needle bearing track rollers and cam followers, which are anti-friction products that are used in industrial applications and military aircraft platforms; and ball bearings include high precision aerospace, airframe control, thin section, and industrial ball bearings that utilize high precision ball elements to reduce friction in high-speed applications.
Read More - Current Price
- $306.28
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 4 Buy Ratings, 4 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $324.67 (6.0% Upside)
An emerging story stemming from the Russian invasion of Ukraine is the steps that many countries are taking to bolster their defense capabilities. And the definition of defensive capabilities will also leak over into the area of cybersecurity which is another sector for investors to keep an eye on.
This means that the rally in defense stocks is not just a U.S.-centric event. And that means that the stocks listed in this presentation and several others are likely to have a long runway.
If investing in individual defense stocks does not fit your investing style, you can consider investing in an exchange-traded fund that is focused on the aerospace and defense sector. There are currently five prominent ETFs that trade on the U.S. markets with total assets under management (AUM) of $5.7 billion. The largest of these funds is the iShares U.S. Aerospace & Defense ETF (BATS:ITA) with approximately $3 billion in assets.
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