As of the close of Wednesday, $Aerospace & Defense (LIST2089.US)$has risen by 16.4% year-to-date, essentially matching the 15.7% increase in the S&P 500. Among them, the performance of the leading symbols has been very strong, with 6 of the top ten market caps in the aerospace and defense sector significantly outperforming the S&P 500, with gains of 29% and above.
Among them,$Howmet Aerospace (HWM.US)$,$RTX Corp (RTX.US)$,$Lockheed Martin (LMT.US)$,$TransDigm (TDG.US)$,$Heico (HEI.US)$The stock price of TransDigm (TDG.US) has recently hit record highs.
Looking at the details,$Howmet Aerospace (HWM.US)$It is the best-performing defense stock so far this year, rising nearly 75%. HWM provides engine components and metal parts for the defense, aerospace, and transportation industries, and is a supplier of $Boeing (BA.US)$.
According to the latest financial report, HWM reported a profit of $0.266 billion and earnings per share of 65 cents in the second quarter, higher than analysts' expectations of $0.2453 billion and 60 cents.
For the third quarter, HWM expects revenue of $1.85 billion to $1.87 billion, exceeding analysts' expectations of $1.81 billion; for the full year of 2024, revenue is expected to be $7.4 billion to $7.48 billion, surpassing analysts' expectations of $7.32 billion.
The second place is $GE Aerospace (GE.US)$, with a cumulative increase of 64%. GE Aerospace is involved in the design and manufacture of jet engines and aerospace systems for companies like Boeing and the military, as well as aftermarket businesses that focus on engine repair, maintenance, and other services. The company is currently benefiting from the rebound in commercial air travel, growth in defense orders, and its independent listing as a company focused on the aerospace industry.
$RTX Corp (RTX.US)$The stock price has risen nearly 50%, and the quarterly performance announced in July shows that the order backlog of rtx corp continues to soar, reaching as high as 206 billion dollars, with the company also pledging to distribute dividends of up to 37 billion dollars by 2025.
In addition, according to the data shared by the trading platform Trend Spider at the end of July, since 2023, rtx corp's stock has been one of the favorite stocks of many members of the US Congress, including many members of the Armed Services Committee. The platform says 'They see the global tension intensifying and are using this situation to their advantage.'
In addition, Buffett's new holdings$Heico (HEI.US)$It has risen by over 40% this year and has risen more than a hundredfold since its listing in 2002.
HEI is an aviation parts manufacturer, mainly providing third-party and imitation original parts for the aviation aftermarket, with parts prices usually 20-30% cheaper than those of boeing and airbus. During an economic downturn, airlines, for cost reduction considerations, are more likely to purchase from heico. In addition, heico also provides various high-tech weapon components to the US military.
Global geopolitical tensions are strong and defense spending in various countries is growing.
Currently, with the escalation of global geopolitical tensions, the military industry is facing unprecedented demand. In the past nine years, military spending has continued to rise, with the United States, Russia, India, and Saudi Arabia contributing the most, accounting for almost two-thirds of the growth. The United States has even ordered new tanks and manned fighter jets, demonstrating its military expansion trend.
Data shows that since the tenure of Republican George W. Bush, US military spending has skyrocketed due to the fight against terrorism and the Iraq War. Defense spending in the fiscal year 2020 (the last year of the Trump administration) was $778 billion. Recently, the total military spending for the fiscal year 2024 (ending on September 30) is $841 billion.
In Europe, influenced by the Russia-Ukraine war, NATO member states have pledged to increase annual military spending to over 2% to respond to security challenges. Even traditionally conservative Japan plans to significantly increase defense spending by 60% over the next five years. This growth is not limited to traditional weapons procurement, but also includes the replacement of outdated equipment such as the M1 Abrams tanks.
At the same time, military expansion plans are diversifying, with unmanned aerial vehicles (drones) and anti-drone technologies becoming new focal points, leading to a surge in market demand. In addition, the trend of electrification in military vehicles is evident, aiming to enhance operational efficiency, reduce refueling frequency, and increase battlefield flexibility and endurance through battery-powered propulsion. These emerging technologies, along with strategic adjustments, are driving profound changes in the global defense industry.
Market analysis believes that all of these factors will inevitably lead policymakers to have a greater interest in investing in military assets. As Gamco's Blanca Rothchild said, "We are facing two intense conflicts, the Israeli-Palestinian conflict and the Russia-Ukraine war, and the level of global turmoil is no less than that of World War II."
Furthermore, Matt Benkendorf, the Chief Investment Officer responsible for quality growth at Asset Management, stated, "Both parties currently support defense spending, given the current state of world conflicts, geopolitical risks are increasing rather than diminishing."
Currently, Republican presidential candidate and former President Donald Trump has proposed increasing the US defense budget, and Democratic presidential candidate Kamala Harris also supports increased military spending under President Joe Biden's supervision.
In addition, defense stocks often perform well during market volatility or economic uncertainty periods, as the products and services they provide are essential to the government and are not easily affected by economic cycles. Moreover, defense companies, with their stable cash flow and government-funded research and development projects, are able to provide shareholders with healthy dividend payments.
How to grasp the investment opportunities in the U.S. defense stocks sector?
Finally, in order to save time and energy in stock selection and to directly capture the overall rise of defense stocks, investors can consider investing in open-ended exchange-traded funds (ETFs) of defense stocks in order to easily follow the industry's upward trend.
It can be seen that, among the ETFs of this theme,$Direxion Daily Aerospace & Defense Bull 3X Shares ETF (DFEN.US)$has risen by nearly 27% year-to-date$Powershares Exchange Traded Fd Tst Aerospace & Defense Portfolio (PPA.US)$rose nearly 20%,$Ishares Trust U.S. Aerospace & Defense Etf (ITA.US)$,$Spdr Series Trust S&P Aerospace & Defense Etf (XAR.US)$Rising more than 10%.
Editor/ping