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With geopolitical tensions showing few signs of abating in the near-term, many investors have been taking a second look at defense stocks.
On Saturday, we asked our analysts which defense stock is the best short-term investment right now. Today’s question is: Which defense stock is the best long-term investment?
Seeking Alpha analysts Dhierin Bechai, Jere Wang of JR Research, Deep Value Ideas and Leo Nelissen gave us their picks.
Dhierin Bechai: For the long term, I continue to like Lockheed Martin (NYSE:LMT). The stock is not cheap compared to its median valuation, but the company has a strong product portfolio coupled with strong shareholder returns in the form of dividends and share repurchases.
Jere Wang of JR Research: I favor RTX (NYSE:RTX) as a long-term investment, given its well-diversified exposure to commercial aerospace and defense contracting businesses. It provides a more well-rounded setup for mitigating concentration risks in the defense business.
Deep Value Ideas: Clearly RTX (RTX). The company is extremely well-diversified in commercial aviation and defense and has a very strong backlog. Through its unique position with the GTF Advantage engine, RTX (RTX) benefits from increasingly strong and predictable long-term service-related revenues while remaining operationally agile. I therefore expect it to report only a modest hit to earnings in even a significant recession, so it should even be able to continue to pay and grow its dividend in such an environment.
Leo Nelissen: Long term, I like most major defense companies. On top of L3Harris (NYSE:LHX) and RTX (RTX), I like — and own — Lockheed Martin (LMT) and Northrop Grumman (NYSE:NOC), two companies with significant orders for missile defense, next-gen aviation, communication, and other programs. Northrop Grumman also has a major drone program, including for submarine drones, which is in the development phase, and advanced surveillance drones that are selling like hotcakes in this defense environment.
On top of that, I like smaller players like AeroVironment (NASDAQ:AVAV), which is innovating in the small-drone environment, an industry that has revolutionized modern warfare in Ukraine.
In general, I’m bullish on the industry, believing it’s hard to go wrong with any of the “big guys.”
More on AeroVironment, L3Harris Technologies, etc.
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