Top 3 Defense Stocks to Watch
Feb 18, 2022
Despite the market turmoil we’ve experienced over the last 24 months, the Aerospace – Defense industry has not rebounded with the same velocity as the rest of the S&P 500. The US Aerospace & Defense Ishares ETF (ITA) tracks US equities in the aerospace and defense sector.
Lockheed Martin Corp (LMT) and Raytheon Technologies Corp (RTX) are components of the S&P 100 index, and Northrup Grumman Corp (NOC) is a component of the S&P 500 index. Over a one-year period, LMT has experienced growth returns of 15.36%, RTX, 29.15%, and NOC 33.96%, respectively. It is appropriate to recognize that the bullish drift in the overall market during the same period has contributed to the performance of these three Aerospace - Defense stocks.
The last three months of daily price action for LMT, RTX and NOC, and, their outperformance of SPY equities, indicates that investors, which includes a large institutional investment base, believe these three stocks represent continued long-term value, which is often sought after during periods when investors are looking for a haven for their capital.
As market conditions respond to continued uncertainty in regional and global political challenges, the value maintained in these three Aerospace – Defense stocks has remained strong.
Currently, NOC posts an impressive profit margin of 19.64% with a return-on-assets of 9.79%, LMT has a profit margin of 9.42% with a return-on-assets of 14.84%, and RTX has a profit margin of 6% with a return-on-assets of 4.03%. In an industry where defense and security concerns are at the forefront of global tensions, it is understandable that many of the federal contracts granted to the Aerospace – Defense private sector accumulate at thelargest market cap corporations. The last three months of profitability measurements represent that current phenomenon.
Within the last 12 months, LMT, NOC, and RTX have all been awarded several contracts worth hundreds of millions of dollars, with Raytheon awarded several contracts worth more than a billion dollars, from the United States government or United States military.
These contracts include systems development, aerospace development, and satellite development contracts. Investors pay a premium to own stock in these companies, which represents pricing for all three compared to the rest of the sector.
Is this increased performance of these stocks related to the mounting military tensions around the globe in the last three months? Possibly, but the answer is not straightforward.
Based on the timing and price movement, it is reasonable to assume escalating military conflicts around the world have added to the increase in company stock prices.
On the other hand, even though the ITA ETF is underperforming in the market, these three stocks have recovered and maintained their value relative to the rest of the stock market and will continue to do so regardless of any current political or military tensions that may arise.
The ability of LMT, NOC, and RTX to dominate competitors and win the lion's share of contracts awarded in this sector makes them valuable Defense Stocks. A retreat from broad market investments and into targeted companies like these could protect capital during inflationary periods performing better than most investments overall.
Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest in options.
tastytrade content is provided solely by tastytrade, Inc. (“tastytrade”) and is for informational and educational purposes only. It is not, nor is it intended to be, trading or investment advice or a recommendation that any security, futures contract, transaction or investment strategy is suitable for any person. Trading securities can involve high risk and the loss of any funds invested. tastytrade, through its content, financial programming or otherwise, does not provide investment or financial advice or make investment recommendations. Investment information provided may not be appropriate for all investors, and is provided without respect to individual investor financial sophistication, financial situation, investing time horizon or risk tolerance. tastytrade is not in the business of transacting securities trades, nor does it direct client commodity accounts or give commodity trading advice tailored to any particular client’s situation or investment objectives. Supporting documentation for any claims (including claims made on behalf of options programs), comparison, statistics, or other technical data, if applicable, will be supplied upon request. tastytrade is not a licensed financial advisor, registered investment advisor, or a registered broker-dealer. Options, futures and futures options are not suitable for all investors. Prior to trading securities products, please read the Characteristics and Risks of Standardized Options and the Risk Disclosure for Futures and Options found on tastyworks.com.
tastytrade is a trademark/servicemark owned by tastytrade.
tastyworks, Inc. ("tastyworks") is a registered broker-dealer and member of FINRA, NFA and SIPC. tastyworks offers self-directed brokerage accounts to its customers. tastyworks does not give financial or trading advice nor does it make investment recommendations. You alone are responsible for making your investment and trading decisions and for evaluating the merits and risks associated with the use of tastyworks’ systems, services or products. tastyworks is a wholly owned subsidiary of tastytrade, Inc (“tastytrade”).
tastyworks, Inc. (“tastyworks”) has entered into a Marketing Agreement with tastytrade (“Marketing Agent”) whereby tastyworks pays compensation to Marketing Agent to recommend tastyworks’ brokerage services. The existence of this Marketing Agreement should not be deemed as an endorsement or recommendation of Marketing Agent by tastyworks. tastytrade is the parent company of tastyworks. tastyworks and Marketing Agent are separate entities with their own products and services. tastytrade has different privacy policies than tastyworks.
Quiet Foundation, Inc. (“Quiet Foundation”) is a wholly-owned subsidiary of tastytrade The information on quietfoundation.com is intended for U.S. residents only. All investing involves the risk of loss. Past performance is not a guarantee of future results. Quiet Foundation does not make suitability determinations, nor does it make investment recommendations. You alone are responsible for making your investment and trading decisions and for evaluating the merits and risks associated with the use of Quiet Foundation’s systems, services or products.
Small Exchange, Inc. is a Designated Contract Market registered with the U.S. Commodity Futures Trading Commission. The information on this site should be considered general information and not in any case as a recommendation or advice concerning investment decisions. The reader itself is responsible for the risks associated with an investment decision based on the information stated in this material in light of his or her specific circumstances. The information on this website is for informational purposes only, and does not contend to address the financial objectives, situation, or specific needs of any individual investor. Trading in derivatives and other financial instruments involves risk, please read the Risk Disclosure Statement for Futures and Options. tastytrade is an investor in Small Exchange, Inc.