RTX - 7 Best Defense Stocks to Buy Now
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The Russian invasion of Ukraine has resulted in one of the biggest geopolitical crises in recent memory. The U.S. government pulled its troops out of Afghanistan last year, which led to the belief that defense stocks would be unattractive, at least in the near term.
However, defense stocks have proven resilient during the current downturn, with several developed countries increasing their military budgets due to the Russia/Ukraine conflict.
For instance, the iShares U.S. Aerospace & Defense ETF has dropped by just 3.80% in the past three months, whereas the S&P500 has shed over 17% of value.
According to CNBC’s top stock pundit Jim Cramer, believes that “The Russian invasion of Ukraine is a game-changer for the defense industry, and you’d really have to be clueless not to notice.” The industry is booming, and it’s time for investors to pounce on the current bear market.
LMTLockheed Martin$390.5RTXRaytheon Technologies$90.32BAHBooz Allen Hamilton$90.54NOCNorthrop Grumman$449.71DDDuPont$54.24GDGeneral Dynamics$209.65OLNOlin$47.2Lockheed Martin (LMT)
Lockheed Martin (NYSE:LMT) is an aerospace giant that operates as a pure-play defense contractor. Its business is based on long-term government contracts that provide a consistent revenue source for the firm.
Moreover, it will likely emerge as a winner in backfilling arms provided to Ukraine and producing more for NATO countries. Additionally, it operates a tremendous dividend profile, boasting over 20 years of payout growth.
Recently, LMT investors took a hit when America’s Defense Department cut its shopping list by 35%. However, the loss in orders has been more than compensated by Europe and Canada, which have collectively placed orders for 223 F-35 fighter jets.
Furthermore, Lockheed recently won a $700 million contract to build 42 low Earth Orbit satellites to kickstart its space division. Hence, these positives offer plenty of long-term upside for LMT stock.
Raytheon Technologies (RTX)
Raytheon Technologies (NYSE:RTX) is one of the leading defense contractors, providing a range of aerospace components and aircraft engines.
Around 30% of its business is attributable to commercial aviation, which was hit hard by the pandemic. Moreover, the loss of revenue from Russia and the supply-chain crisis continues to weigh down its aviation business.
However, its defense segment has proven to be significantly more potent, driven by sector tailwinds. Its Stinger missiles and Javelin anti-tank munitions have become highly popular of late.
The management has also discussed a potential bump in replacement orders for the two top-selling products in the defense segment in the next couple of years. CEO Greg Hayes targets a handsome $10 billion in free cash flows by 2025. Hence, I expect an increase in its already impressive dividend yield of 2.34%.
Booz Allen Hamilton (BAH)
Booz Allen Hamilton (NYSE:BAH) has established itself as one of the go-to spy organizations in the world. It is a research and consulting firm that mainly focuses on public-sector customers.
It offers a wide variety of services, including cyber, digital solutions, analytics solutions, and others. Most of its clients are from the defense sector, while less than 30% belong to the civil sector.
Booz offers investors a highly attractive growth profile, with its five-year revenue and EBITDA growth at 7.61% and 11%, respectively. Moreover, in its recently concluded fiscal year 2022, it delivered a 6.4% growth in sales with a 21.5% improvement in backlogs and a highly compelling outlook for the upcoming year. It expects a 10% adjusted EBITDA margin to revenue, with 5% to 9% sales growth in 2023.
Northrop Grumman (NOC)
Northrop Grumman (NYSE:NOC) is a highly diversified defense operation with four main divisions: space, aeronautics, mission, and defense systems.
Though its defense systems constitute the lowest amount to total revenues, that number has grown over time. Moreover, with the scale at which it operates, it has greater leverage to grow its defense division even more in the future.
Company results were pressured during the first quarter due to Covid-19 headwinds. Despite the weakness, its dividend increased by 10%. Nevertheless, it has maintained its revenue guidance of $36.2 billion to $36.6 billion.
Moreover, its operating margins are likely to clock over 11.7% to 11.9%. The defense division will be strengthened by revenues of the B-21 Raider this year, which should contribute over $1.5 billion in sales. Also, its Ground-Based Strategic Deterrent will factor into growth in 2024.
DuPont (DD)
DuPont (NYSE:DD) is a chemicals and applied sciences giant which has recently emerged as a defensive stock option.
The crisis in Ukraine led to an increase in demand for body armor, and perhaps the most robust protective material in Kevlar was developed by DuPont. Biden’s recently announced an aid package to Ukraine, and it will be shipping defensive assets such as body armor to the country.
Kevlar, the company’s top propriety product, has been a material of choice for law enforcement and military officials. Moreover, Kevlar has its utility in automotive vehicles, adhesives, aerospace, and other areas. According to Future Market Insights, the market is expected to grow at a steady 5.2% until 2032, reaching a valuation of $4,305.8 million.
General Dynamics (GD)
General Dynamics (NYSE:GD) is another diversified defense operation that includes four main segments aerospace, marine, technologies, and combat systems.
It has been generating stable revenue growth over the past several years and boasts a phenomenal backlog of $87.2 billion. Moreover, it is one of the top U.S. government-approved defense suppliers, with most of its business coming from the Department of Defense.
Furthermore, GD has been a key supplier to NATO forces, a trend likely to continue given the current geopolitical scenario. NATO awarded its defense systems contract in 2020, delivering 624 of its tactical transport systems by 2025.
Additionally, in 2017, the military alliance gave the enterprise a five-year $140 million contract to provide IT and cloud services. Therefore, GD boasts an enticing growth runway ahead.
Olin (OLN)
Olin (NYSE:OLN) is a leading manufacturer and distributor of chemical products in the U.S., Europe, and internationally.
It also operates a sizeable ammunition segment called Winchester that is in the spotlight due to the current situation in Ukraine. Over 10% of commercial rifle and handgun consumption in the U.S. comes from Russia, and with minimal supply reaching the U.S., Olin has a massive opportunity ahead.
Overall it operates an incredibly robust business that has been highly profitable over the years. Its five-year average EBITDA growth is over 45%. Moreover, it has revised its full-year EBITDA forecast to $2.9 billion, a $300 million increase from previous estimates for the first quarter. It shows that despite the higher input costs, the company remains confident of delivering healthy EBITDA this year.
On the date of publication, Muslim Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
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