In this article, we will take a look at the 12 best aerospace and defense stocks to buy. To skip our analysis of the recent trends, and market activity, you can go directly to see the 5 Best Aerospace and Defense Stocks to Buy.
Aerospace
The aerospace and defense industry recovered significantly in 2022 with the rising demand for air travel as well as increased pressures for higher military spendings. Supply chain disruptions and labor shortages are still among the leading challenges for the industry according to a report by Deloitte.
A prime example of labor issues was the suspension of production at the Wichita production facility of Spirit AeroSystems Holdings, Inc. (NYSE:SPR) following the strike call by union employees on June 21. The strike was called off after the ratification of a new four-year contract with union members on June 29 with the resumption of full production expected on July 5. The company is responsible for making fuselages and other components of aerostructures for Airbus SE as well as The Boeing Company (NYSE:BA).
In June, The Boeing Company (NYSE:BA) released its Commercial Market Outlook report for 2023. The company anticipates the global demand for 42,595 new commercial jets by 2042, valued at $8 trillion. The projections are based on the assumptions that the passenger traffic will continue to grow at a pace of more than 2.6% while the global fleet will expand at a rate of 3.5% per year. Airlines are expected to replace nearly half of their existing fleet with more fuel-efficient models.
Later on at the Paris Air Show, The Boeing Company (NYSE:BA) announced multiple large contracts recently including the Air India order of up to 290 Single-aisle and widebody jets, as well as secured commitments from Riyadh Air and Saudi Arabian Airlines for up to 121 787 airplanes.
Defense
Global military spending has increased by 19% since 2013 to reach $2.24 trillion in 2022 which accounts for 2.2% of the world’s GDP. The Russia-Ukraine conflict has been a key catalyst for military spending as Europe’s military spending surged 13% year-on-year in 2022. In the United States, Lockheed Martin Corporation (NYSE:LMT) the biggest beneficiary of increases in military spending as the company was awarded $45.68 billion worth of contracts by the U.S. Department of Defense (DoD) in 2022. Other notable DoD contractors included The Boeing Company (NYSE:BA), Raytheon Technologies Corporation (NYSE:RTX), General Dynamics Corporation (NYSE:GD), and Northrop Grumman Corporation (NYSE:NOC), among others.
NATO, the North Atlantic Treaty Organization, is an intergovernmental alliance between 31 countries with an integrated military command structure. NATO has also picked up the pace in terms of military spending in the backdrop of the Russia-Ukraine conflict. The countries in the organization cumulatively spent a total of $1.2 trillion on military in 2022, 0.9% more than the previous year. The organization’s chief has urged its member countries to increase their military spending to at least 2% of the GDP. You can read more about this in our recently published article, NATO Military Spending by Country: Top 20 Countries.
Photo by Kevin Schmid on Unsplash
Methodology
We used stock screeners to identify the companies that operate in the aerospace and defense industry and shortlisted the stocks with growth catalysts, strong fundamentals, and positive market sentiment. The final step involved the ranking of the identified list of stocks based on their popularity among the top hedge funds tracked by Insider Monkey.
Spirit AeroSystems Holdings, Inc. (NYSE:SPR), based in Wichita, Kansas, is one of the world's largest manufacturers of aerostructures for commercial airplanes, defense platforms, and business/regional jets. It designs, engineers, and manufactures fuselages, nacelles (including thrust reversers), struts/pylons, wing structures, and flight control surfaces.
Spirit AeroSystems Holdings, Inc. (NYSE:SPR) was forced to suspend production at its Wichita production facility following the strike call union employees on June 21. The strike was called off after the ratification of a new four-year contract with union members on June 29 with the resumption of full production expected on July 5.
On May 3, Spirit AeroSystems Holdings, Inc. (NYSE:SPR) released its financial results for Q1 2023. Its revenue surged by 22% y-o-y to $1.4 billion and a net loss of $281 million was generated for the quarter. The company entered into agreements with certain customers to receive cash advances totaling $280 million including $180 million from The Boeing Company (NYSE:BA).
Spirit AeroSystems Holdings, Inc. (NYSE:SPR) has made it onto our list of 12 best aerospace and defense stocks to buy based on its leadership position in the aerostructures manufacturing market and strong prospects for topline growth.
As of March 31, Spirit AeroSystems Holdings, Inc. (NYSE:SPR) shares were held by 31 hedge funds out of the 943 prominent hedge funds tracked by Insider Monkey, with a total value of $430 million.
11. Huntington Ingalls Industries, Inc. (NYSE:HII)
Number of Hedge Fund Holders: 32
Newport News, Virginia-based Huntington Ingalls Industries, Inc. (NYSE:HII) is a global, all-domain defense partner, focused on building and delivering naval ships and technologies primarily for the U.S. Government. It also delivers engineering and technology solutions to enable multi-domain distributed operations in the government and commercial markets.
With a history of more than 135 years, Huntington Ingalls Industries, Inc. (NYSE:HII) has an extensive expertise in military shipbuilding. The company generates majority of its revenues from U.S. Government contracts and had a total backlog of $47.0 billion, including $2.6 billion added in Q1 2023, as of March 31.
As of Q1 2023, Huntington Ingalls Industries, Inc. (NYSE:HII) shares were held by 32 prominent hedge funds tracked by Insider Monkey, with a total value of $433 million. Notable hedge fund investors included AQR Capital Management, GQG Partners, and Woodline Partners, among others.
Axon Enterprise, Inc. (NASDAQ:AXON), based in Scottsdale, Arizona, is a leading technology company focused on public safety. Formerly known as TASER International, the company offers TASER energy devices, body cameras, in-car cameras, cloud-hosted digital evidence management solutions, productivity software and real-time operations capabilities.
On May 9, Axon Enterprise, Inc. (NASDAQ:AXON) released its financial results for Q1 2023. Its net revenue increased by 34% y-o-y to $343 million, while net income declined 18% y-o-y to $45 million. Despite a decline in net income, the company exceeded consensus estimates for normalized EPS by $0.34 with an EPS of $0.88 for the quarter.
As of March 31, Axon Enterprise, Inc. (NASDAQ:AXON) shares were held by 34 hedge funds out of the 943 prominent hedge funds tracked by Insider Monkey. Neal C. Bradsher’s Broadwood Capital was its largest hedge fund shareholder with ownership of 0.76 million shares valued at $171 million.
Pittsburgh, Pennsylvania-based Howmet Aerospace Inc. (NYSE:HWM) is a leading provider of advanced engineered solutions for the aerospace industry. It focuses on jet engine components, aerospace fastening systems, and titanium structural parts for aerospace and defense applications.
On May 2, Howmet Aerospace Inc. (NYSE:HWM) released its financial results for Q1 2023. It managed to post a strong quarterly performance with normalized EPS recorded at $0.42, exceeding consensus estimates by $0.04.
On July 1, TD Cowen analyst Gautam Khanna raised the price target on Howmet Aerospace Inc. (NYSE:HWM) shares to $55 from $49 and maintained an ‘Outperform’ rating.
As of March 31, Howmet Aerospace Inc. (NYSE:HWM) shares were owned by 42 hedge fund holders with a total value of $2.7 billion. Paul Singer’s Elliott Management was the largest hedge fund shareholder with ownership of 24.7 million shares valued at $1.04 billion.
Calgary, Alberta-based General Dynamics Corporation (NYSE:GD) is a global aerospace and defense company that offers products and services in business aviation, ship construction and repair, land combat vehicles, weapons systems and munitions, and technology.
On April 26, General Dynamics Corporation (NYSE:GD) released its financial results for Q1 2023. Its revenue increased by 5% y-o-y to $9.9 billion, while its net income remained constant y-o-y at $730 million.
On June 7, the board of directors of General Dynamics Corporation (NYSE:GD) declared a quarterly cash dividend of $1.32 per common share. Earlier in March, the company increased dividend payouts by 4.8% over last year’s dividend which marked the 26th consecutive annual dividend increase by the company.
On March 30, William Blair analyst Louie DiPalma initiated coverage of General Dynamics Corporation (NYSE:GD) with an ‘Outperform’ rating and potential upside of at least 17% over the next 12 months.
Northrop Grumman Corporation (NYSE:NOC) is a leading aerospace and defense company that provides space systems, advanced aircraft, missile defense, advanced weapons and long-range fires capabilities, mission systems, networking and communications, strategic deterrence systems, and other technologies, such as artificial intelligence, advanced computing, and others.
Northrop Grumman Corporation (NYSE:NOC) recorded a strong performance in Q1 2023. Its revenue increased by 6% y-o-y to $9.3 billion while EPS, at $5.50, exceeded consensus estimates by $0.41. The company also managed to successfully build upon its contracts base with $8.0 billion of net awards added during the quarter, bringing total backlog to $77.5 billion.
Northrop Grumman Corporation (NYSE:NOC) also has a history of stable dividends and has increased dividend payouts for 20 consecutive years. On May 16, the company announced an 8% increase to its quarterly dividend which brought the dividend amount to $1.87 per share.
As of Q1 2023, Donald Yacktman’s Yacktman Asset Management was the largest hedge fund shareholder of Northrop Grumman Corporation (NYSE:NOC) with ownership of 0.41 million shares valued at $189 million.
Based in Melbourne, Florida, L3Harris Technologies, Inc. (NASDAQ:LHX) is a leading aerospace and defense company that designs, develops, and manufactures radio communications products and systems, including single channel ground and airborne radio systems.
L3Harris Technologies, Inc. (NASDAQ:LHX) announced two acquisitions in 2022 to enhance its capabilities across different areas. The first one, a $1.96 billion acquisition of the tactical data links product line of ViaSat, Inc. (NASDAQ:VSAT) was closed in January 2023. While the $4.7 billion planned acquisition of rocket propulsion systems provider, Aerojet Rocketdyne Holdings Inc. (NYSE:AJRD), is awaiting regulatory approvals.
According to the Insider Monkey data on 943 leading hedge funds, 46 hedge funds were long L3Harris Technologies, Inc. (NASDAQ:LHX) shares as of Q1 2023, with the total shares held by hedge funds valued at $1.4 billion.
