By MarketBeat. Originally published at ValueWalk.
The Best Offense Is A Good Defense
Geopolitical events like the current conflict between Russia and Ukraine can cause some big moves in financial markets, which is evident in the price action investors have witnessed over the last few days. Commodity prices have been soaring, equity markets have been quite volatile, and one area of the market is seeing heavy buying since the onset of the invasion – defense stocks.
Q4 2021 hedge fund letters, conferences and more
These are companies that provide products or services to a military or intelligence department of a government and could be poised to receive lots of new orders if the current conflict continues to escalate. Hopefully, we will see a peaceful resolution to the Russia-Ukraine issue quickly, but this event has certainly reminded investors of how important defense contractors are in today’s world.
While many of the top defense stocks have made massive moves over the last few sessions that are hard to justify chasing, adding shares on dips or periods of consolidation for the long-term could be a smart call. Here are 3 defense stocks to consider during the Russia-Ukraine conflict:
Raytheon Technologies (NYSE:RTX)
The first defense name on our list is Raytheon Technologies, a company that has more exposure to the commercial aerospace industry than other names on our list. This quality could be positive or negative depending on how quickly you think commercial air travel will bounce back after the pandemic. With that said, it’s nice to know that Raytheon has a balanced business that includes both commercial aerospace and defense segments, which means it can effectively deal with declines in either component of its business. Given the backdrop of current events, investors should be more interested in Raytheon’s defense business, which includes Raytheon Intelligence & Space and Raytheon Missiles & Defense.
U.S. Defense spending should help to drive revenue growth for Raytheon in the coming years, particularly thanks to the rising geopolitical tensions and bipartisan support for defense spending. Raytheon delivered Q4 sales of $17 billion, up 4% year-over-year, and saw its adjusted EPS rise by 46% year-over-year to reach $1.08, which could be a sign of good things to come for the company this year. Finally, with a 1.99% dividend yield, this is a defense stock that investors can confidently hold for the long term.
Northrop Grumman (NYSE:NOC)
When it comes to technical analysis, the old adage “the bigger the base, the bigger the breakout” holds true time and time again. That’s a big reason why Northrop Grumman should be on your radar, as the stock is breaking out to highs after almost an entire year of consolidation. It’s a leading global defense contractor that provides systems integration, defense electronics, information technology, and advanced aircraft and space technology primarily to the U.S. government. Northrop Grumman was worth a look even before the tensions started rising between Russia and Ukraine, as it’s a blue-chip name with an attractive valuation.
The stock is currently trading at a P/E ratio of 10.14, which is a noticeable discount to the S&P 500 and could mean shares are undervalued at this time. Northrop Grumman also recently increased its dividend by 8%, which is a strong signal from the company’s management that the company’s business has intriguing prospects ahead. Northrop’s Space Systems segment has been a bright spot lately, and the Department of Defense has asked for 152 F-35 jets in 2022, up from 136 in 2021, another positive to consider. While starting a new position in this leading defense contractor after the recent huge move might not be the best approach, Northrop Grumman could be a great “buy the dip” opportunity in the coming sessions if shares pull back.
Lockheed Martin (NYSE:LMT)
Finally, we have Lockheed Martin, another strong name in the defense sector that is absolutely worth looking at in the current market environment. It’s the world’s largest defense, security, and intelligence firm, so naturally, the company could be on the verge of receiving lots of new business following the Russia-Ukraine conflict. Keep in mind that although Lockheed generates the majority of its revenue from the U.S. government, the company also earns roughly a quarter of its revenue from foreign governments.
European countries are likely going to be looking to bolster their military capabilities after the current conflict is resolved, which could certainly end up benefitting Lockheed Martin. In fact, Germany has already pledged to increase its military spending to more than 2% of the country’s GDP. It’s also worth noting that the U.S. prioritizes missile development and missile defense, which are areas in which Lockheed Martin excels. Finally, a 2.58% dividend yield makes this a great long-term holding to consider adding on dips.
Should you invest $1,000 in Lockheed Martin right now?
Before you consider Lockheed Martin, you’ll want to hear this.
MarketBeat keeps track of Wall Street’s top-rated and best performing research analysts and the stocks they recommend to their clients on a daily basis. MarketBeat has identified the five stocks that top analysts are quietly whispering to their clients to buy now before the broader market catches on… and Lockheed Martin wasn’t on the list.
While Lockheed Martin currently has a “Hold” rating among analysts, top-rated analysts believe these five stocks are better buys.
Read the full article here by Sean Sechler, MarketBeat
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