In this article, we discuss the 12 best aerospace stocks to buy according to hedge funds. If you want to see more stocks in this selection, check out 5 Best Aerospace Stocks To Buy.
Previously we cited a survey by Deloitte, where 88% of senior executives believed that the outlook for the aerospace and defense industry in 2023 is positive to some extent. Their optimism was based on various factors such as the emergence of new technologies and segments like advanced air mobility, the evolution of business models, increased exploration of space, and the utilization of digital thread and smart factories. Similarly, Fitch Ratings reported that the Aerospace & Defense sector is showing signs of improvement, and there is potential for growing cash flows and debt reduction capacity from 2023 due to favorable demand patterns. Fitch predicts that commercial aircraft manufacturers and suppliers will benefit from the strong global demand for new aircraft fleets as global travel recovers to pre-pandemic levels, despite the potential risks of recession in the near future.
On March 9, General Electric Company (NYSE:GE) saw a significant increase in its stock value after predicting that the profit margins of its aviation division, which now primarily focuses on producing and servicing jet engines, would continue to expand as an independent business. The company also expects the aerospace division to experience revenue growth at a mid-to-high single digit rate and generate free cash flow equivalent to its net income in the same period. According to General Electric Company (NYSE:GE), the combined power-equipment and renewable energy units are expected to experience mid-single-digit sales growth and high single-digit profit margins, despite the current challenges faced by the wind turbine business. General Electric Company (NYSE:GE) has also reconfirmed its financial targets for 2023, which include more than doubling its adjusted earnings and generating up to $4.2 billion in free cash flow.
Air travel was expected to make a major comeback in 2023, with China reopening, airlines increasing the number of flights and airports hiring more staff to handle the expected surge in demand. However, the growth of air travel could be hindered by a potential bottleneck caused by a shortage of aircraft engines and spare parts, especially for popular Airbus SE and Boeing jets. The situation is worsening because more airlines are using the latest-generation turbines, which are up to 20% more fuel efficient but require more frequent maintenance cycles than their sturdier predecessors. Even before the pandemic, the industry was already experiencing supply chain constraints, and since the pandemic, engine manufacturers have been facing challenges such as a shortage of skilled mechanics and component shortages. These challenges have been affecting the industry significantly.
Some of the best aerospace stocks to buy include Northrop Grumman Corporation (NYSE:NOC), TransDigm Group Incorporated (NYSE:TDG), and Lockheed Martin Corporation (NYSE:LMT).
Our Methodology
For this article, we shortlisted aerospace companies and selected the following aerospace stocks based on overall hedge fund sentiment toward each stock. We have assessed the hedge fund sentiment from Insider Monkey’s database of 943 elite hedge funds tracked as of the end of the fourth quarter of 2022. The list is arranged in ascending order of the number of hedge fund holders in each firm.
Howmet Aerospace Inc. (NYSE:HWM) was founded in 1888 and is based in Pittsburgh, Pennsylvania. The company provides advanced engineered solutions for the aerospace and transportation industries worldwide. It operates through four segments – Engine Products, Fastening Systems, Engineered Structures, and Forged Wheels. On February 14, Howmet Aerospace Inc. (NYSE:HWM) reported a Q4 non-GAAP EPS of $0.38, in-line with market estimates. The revenue of $1.5 billion climbed 15.4% year-over-year, beating Wall Street consensus by $30 million. Cash balance at the end of the December quarter came in at $792 million, the company carried out $65 million of common stock repurchases, announced a $0.04 per share dividend on common stock, and $9 million of debt repurchases.
On February 21, Argus increased Howmet Aerospace Inc. (NYSE:HWM)’s price target from $43 to $49 and maintained a Buy rating for the shares. The reason for this upgrade is the company's impressive Q4 results and the forecasted double-digit growth in revenue and earnings for 2023. According to Argus, business trends at Howmet Aerospace Inc. (NYSE:HWM) are favorable, and the new price target indicates a multiple that is more in line with the industry average for normalized earnings.
According to Insider Monkey’s fourth quarter database, 35 hedge funds were bullish on Howmet Aerospace Inc. (NYSE:HWM), compared to 46 funds in the prior quarter. Paul Singer’s Elliott Management is the largest investor in the company.
Like Northrop Grumman Corporation (NYSE:NOC), TransDigm Group Incorporated (NYSE:TDG), and Lockheed Martin Corporation (NYSE:LMT), Howmet Aerospace Inc. (NYSE:HWM) is one of the best aerospace stocks to invest in.
Textron Inc. (NYSE:TXT) operates in the aircraft, defense, industrial, and finance businesses worldwide. It operates through six segments – Textron Aviation, Bell, Textron Systems, Industrial, Textron eAviation, and Finance. Textron Inc. (NYSE:TXT) anticipates generating approximately $14.0 billion in revenues in 2023, representing an increase from $12.9 billion, as compared to the consensus estimate of $13.81 billion. The company also projects that its GAAP earnings per share from continuing operations for the entire year of 2023 will range between $4.40 to $4.60, or $5.00 to $5.20 on an adjusted basis, as compared to the consensus estimate of $4.50. It is one of the best aerospace stocks to buy.
Morgan Stanley analyst Kristine Liwag believes that the announcement of the U.S. Army awarding the Future Long-Range Assault Aircraft (FLRAA) program to Textron Inc. (NYSE:TXT) is a significant development that will contribute to long-term growth of military aircraft at Bell. The analyst expects that this news will be received positively by the market. Although Textron's DEFIANT X aircraft surpassed Lockheed Martin’s and Boeing’s offering in the competition, Liwag noted that the losing parties could potentially contest the award decision, leading to additional delays until the matter is resolved. Despite this uncertainty, the analyst maintained an Overweight rating and a $84 price target on Textron Inc. (NYSE:TXT) shares on December 6.
According to Insider Monkey’s fourth quarter database, 36 hedge funds were long Textron Inc. (NYSE:TXT), compared to 28 funds in the prior quarter. Cliff Asness’ AQR Capital Management is the biggest investor in the company.
Axon Enterprise, Inc. (NASDAQ:AXON) is an Arizona-based company that develops, manufactures, and sells conducted energy devices under the TASER brand in the United States and internationally. On February 28, Axon Enterprise, Inc. (NASDAQ:AXON) reported a Q4 non-GAAP EPS of $0.70 and a revenue of $336.14 million, outperforming Wall Street estimates by $0.19 and $30.27 million, respectively. Axon Enterprise, Inc. (NASDAQ:AXON) is one of the best aerospace stocks to invest in.
On March 7, Goldman Sachs initiated coverage of Axon Enterprise, Inc. (NASDAQ:AXON) with a Buy rating and a $263 price target. The company is in a strong position to sell a range of sensors, including body and fleet cameras, as well as software and cloud storage and analytics services. Goldman Sachs believes that there is increasing demand for these products, particularly as there is a growing emphasis on improving accountability and effectiveness in public safety. Axon Enterprise, Inc. (NASDAQ:AXON) also has over 10 years of contracted revenue, which gives good visibility into revenue growth, as per Goldman Sachs.
According to Insider Monkey’s fourth quarter database, 38 hedge funds were long Axon Enterprise, Inc. (NASDAQ:AXON), up from 27 funds in the prior quarter. Broadwood Capital is the biggest position holder in the company.
Baron Discovery Fund made the following comment about Axon Enterprise, Inc. (NASDAQ:AXON) in its Q4 2022 investor letter:
“Shares of Axon Enterprise, Inc. (NASDAQ:AXON), a public safety-focused technology company, rose during the quarter following a strong earnings report in which full-year revenue guidance was raised. Notable strength in the Axon Cloud segment reflects increased domestic demand for software-heavy premium integrated bundles. We believe the company has a line of sight to a more than 20% average annual revenue growth, an improving margin profile with software solutions growth, and the potential to become the dominant ecosystem in the public safety space.”
Honeywell International Inc. (NASDAQ:HON) was founded in 1885 and is headquartered in Charlotte, North Carolina. It is a global technology and manufacturing firm with diverse operations. Honeywell International Inc. (NASDAQ:HON)’s Aerospace segment provides a range of products and services such as auxiliary power units, propulsion engines, avionics systems, environmental control and electric power systems, flight safety equipment, radar and surveillance systems, advanced systems and instruments, satellite and space components, aircraft wheels and brakes, as well as thermal systems and wireless connectivity and management services.
On February 14, HSBC analyst Puneet Garg raised the firm's price target on Honeywell International Inc. (NASDAQ:HON) to $205 from $190 and kept a Hold rating on the shares following the Q4 report. The analyst believes that Honeywell International Inc. (NASDAQ:HON) is in a good position in the current economic climate due to its diversified exposure to different end-markets. However, HSBC also noted that the stock's valuation premium already reflects this favorable exposure, which means that the current price already takes into account these positive factors.
According to Insider Monkey’s Q4 data, 44 hedge funds were bullish on Honeywell International Inc. (NASDAQ:HON), compared to 53 funds in the prior quarter. Zevenbergen Capital Investments is a prominent stakeholder of the company, with 551,594 shares worth $91.5 million.
Here is what ClearBridge Investments has to say about Honeywell International Inc. (NASDAQ:HON) in its Q1 2021 investor letter:
“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.”
L3Harris Technologies, Inc. (NYSE:LHX) is a Florida-based aerospace and defense technology company that specializes in mission-critical solutions for government and commercial customers worldwide. On February 24, L3Harris Technologies, Inc. (NYSE:LHX) declared a $1.14 per share quarterly dividend, a 1.8% increase from its prior dividend of $1.12. The dividend is payable on March 24, to shareholders of record on March 10. L3Harris Technologies, Inc. (NYSE:LHX) is one of the best aerospace stocks to monitor.
On February 1, Wells Fargo analyst Matthew Akers increased L3Harris Technologies, Inc. (NYSE:LHX)’s price target from $219 to $230 while maintaining an Equal Weight rating on the shares. The analyst believes that L3Harris Technologies, Inc. (NYSE:LHX)’s initial guidance for 2023 may be conservative. However, he also noted that concerns about budget constraints and supply chain disruptions are still affecting the stock's performance.
According to Insider Monkey’s fourth quarter database, 45 hedge funds were long L3Harris Technologies, Inc. (NYSE:LHX), compared to 39 funds in the prior quarter. Ric Dillon’s Diamond Hill Capital is the largest stakeholder of the company.
Here is what Artisan Mid Cap Fund has to say about L3Harris Technologies, Inc. (NYSE:LHX) in its Q4 2020 investor letter:
“We also exited our position in L3Harris Technologies. L3Harris’ recent quarterly results showed some pandemic-related impact on the company’s business, though relative to other industrials stocks, the effect has been quite modest, and it is achieving ahead-of-schedule synergies from its recent merger. However, concerns about ballooning federal deficits and potential associated defense-budget cuts have been a headwind. We share these concerns, and with the company’s market cap above the mid-cap range, we concluded our campaign to fund newer profit cycle opportunities.”
General Dynamics Corporation (NYSE:GD) was founded in 1899 and is headquartered in Reston, Virginia. It is an aerospace and defense company that operates through four segments – Aerospace, Marine Systems, Combat Systems, and Technologies. On March 9, General Dynamics Corporation (NYSE:GD) declared a $1.32 per share quarterly dividend, a 4.8% increase from its prior dividend of $1.26.
On January 26, Citi analyst Jason Gursky maintained a Buy rating on General Dynamics Corporation (NYSE:GD) but lowered the firm's price target on the shares to $283 from $298. Despite this, Citi remains positive about the Aero division's outlook over the next few years, as recent booking trends and management's efforts to reduce lead times for aircraft are seen as encouraging.
According to Insider Monkey’s Q4 data, 46 hedge funds were bullish on General Dynamics Corporation (NYSE:GD), up from 35 funds in the prior quarter. Longview Asset Management is the largest stakeholder of the company.
Here is what Oakmark Fund specifically said about General Dynamics Corporation (NYSE:GD) in its second quarter 2022 investor letter:
“Finally, General Dynamics Corporation (NYSE:GD)’s defense business enabled the stock to resist the bear market’s downward pressure. We eliminated the position to fund more attractive holdings.”
HEICO Corporation (NYSE:HEI) is a Florida-based company that designs, manufactures, and distributes aerospace, defense, and electronic products and services. HEICO Corporation (NYSE:HEI)’s fourth quarter revenue of $620.91 million climbed 26.6% year-over-year, beating Wall Street estimates by $30.91 million. EBITDA increased 29% to $157.1 million in the first quarter of fiscal 2023, up from $122.3 million in the first quarter of fiscal 2022.
On March 1, Truist analyst Michael Ciarmoli raised the firm's price target on HEICO Corporation (NYSE:HEI) to $190 from $169 and kept a Buy rating on the shares. The analyst noted that HEICO Corporation (NYSE:HEI)’s Flight Support Group segment has continued to perform better than expected, with margins exceeding expectations. As demand remains strong, the segment's margins are likely to remain elevated. Additionally, the analyst anticipates that HEICO Corporation (NYSE:HEI)’s supply chain pressures will ease, leading to an increase in the EPS estimates. The analyst now expects FY23 EPS to be $3.17, which is up 16c, and FY24 EPS to be $3.63, which is up 25c.
According to Insider Monkey’s fourth quarter database, 48 hedge funds were bullish on HEICO Corporation (NYSE:HEI), compared to 42 funds in the prior quarter. Ken Griffin’s Citadel Investment Group is the largest stakeholder of the company.
In addition to Northrop Grumman Corporation (NYSE:NOC), TransDigm Group Incorporated (NYSE:TDG), and Lockheed Martin Corporation (NYSE:LMT), HEICO Corporation (NYSE:HEI) is one of the premier aerospace stocks to invest in.
