5 Best Defense Contractor Stocks

The recent Russian invasion of Ukraine creates obvious humanitarian concerns. Ukrainians are either scrambling to flee their country or join resistance groups to fight against a much larger, better-armed military.

While the world watches and hopes for a peaceful resolution, the global economy keeps moving ahead. Not every sector will grow during military conflicts. In fact, stock markets around the world have already lost significant value during the recent conflict. To make matters worse, oil prices have skyrocketed as producers worry about losing access to Russia’s massive oil and gas reserves.

The value of defense contractor stocks, however, could grow quickly as militaries prepare for defensive and offensive actions. Here are five of the best defense contractor stocks to buy.

Northrop Grumman

Northrop Grumman (NOC) has an annual revenue stream of over $30 billion. The company doesn’t get much press among the wider public for its defense systems, although it has certainly generated a lot of money from developing arms and training soldiers how to use them. (In the early 2000s, the U.S. government paid Northrop Grumman $48 million to train the Iraqi Army.)

Instead, attention has largely focused on the James Webb Space Telescope. NASA used Northrup Grumman as the orbiting telescope’s main contractor.

The telescope and its rockets have been in development since 1996, so the money earned by Northrop Grumman got spread out over nearly two decades. The telescope’s recent success has made headlines, but it hasn’t factored significantly into the company’s earnings and stock price.

More importantly, Northrop Grumman has worked on developing an intercontinental ballistic missile for the Air Force. It is also the major manufacturer of the B-12 Raider stealth bomber. The B-12 Raider can drop conventional and nuclear bombs, which becomes a critical consideration when Russia makes thinly veiled threats about attacking other countries with nuclear weapons.

Investors recently demonstrated their faith in Northrop Grumman’s ability to engineer and manufacture weapons. On February 23, 2022, the day before Russia invaded Ukraine, Northrup Grumman Corporation’s shares sold for about $386. The price jumped to $395.49 on the day of the invasion. Within a couple of weeks, NOC share price had risen by almost $100 per share.

The bottom line is no list of defense stocks to buy is complete without Northrop Grumman.

Boeing

Boeing (BA) makes a long list of weapons and military vehicles, including:

• AH-64 Apache helicopters
• CH-47 Chinook helicopters
• B-52 bombers
• Unmanned Little Bird H-6U
• T-7A Red Hawk fighter jet
• Small Diameter Bombs
• Joint Direct Attack Munitions
• Laser Joint Direct Attack Munitions

Boeing share price has struggled over the last few years, but that doesn’t have anything to do with its military research and products. Instead, it comes from grounding the 737 MAX worldwide. Two crashes in late 2018 and early 2019 raised serious concerns about the aircraft’s safety. Overall, the company lost about $80 billion in fines, compensation, legal fees, and canceled orders.

Like most companies, Boeing stock experienced a sudden drop in March of 2020. Prices plummeted from about $340 in mid-February to $95 by the end of March. Boeing has recovered somewhat, but it still has not managed to break above $270.

Lockheed Martin

Lockheed Martin (LMT) became one of the world’s largest defense contractors when Lockheed Corporation and Martin Marietta merged in 1995. The U.S. Department of Defense is Lockheed Martin’s largest client, accounting for about half of the business’s annual sales.

With this kind of arrangement, Lockheed Martin will almost always profit from military conflict. It’s telling that the company’s stock didn’t cross the $100 mark until 2007, five years into the Iraq War. From there, the price has kept increasing, with occasional peaks and valleys.

When the Russian invasion of Ukraine became a certainty, investors put their faith in Lockheed Martin. The price started an obvious upward trajectory on February 24. A week before, shares sold for about $385. Two weeks later, they were selling for over $466. If the conflict expands or continues, expect Lockheed and other defense contractor share prices to see even more elevated levels.

Raytheon Technologies

Like Lockheed Martin, Raytheon Technologies (RTX) is one of the largest contractors for the U.S. Department of Defense.

The company built a long-range radar system for the Air Force in the late 2010s, earning it about $1 billion in revenue.

Raytheon finished replacing the Patriot air and missile defense system in 2020 with a system known as the Lower Tier Air and Missile Defense Sensor (LTAMDS).

Clearly, Raytheon and the U.S. government have close ties that could lead to Raytheon’s success during a military crisis.

It looks like that’s already happening during the latest attention-grabbing scrimmage between Russia and Ukraine. Surprisingly, Raytheon share price popped just 10% in the two weeks subsequent to the day of the Russian invasion.

The relatively low cost of Raytheon should make it appealing to investors without large amounts of capital. Assuming that the conflict continues – or grows – there is a good chance that Raytheon’s stock price will increase.

General Dynamics

General Dynamics (GD) is the fifth-largest defense contractor in the United States. Some of its products include missile systems, aircraft, electric boats, navigation systems, and launch vehicles. It has played a critical role in Middle East wars, including the War in Afghanistan and the Gulf War.

General Dynamics employs more than 100,000 people and generates about $39.5 billion in revenue per year.

As disruptions from the COVID-19 pandemic became clearer, the price dropped to about $114, it’s lowest since 2014. Share prices have been growing throughout the last year. Growth accelerated on February 24, quickly going from about $218 to over $250 on March 5 alone. The upward trend showed no signs of slowing.

Will American Defense Contractors Profit From Upcoming Conflicts?

It’s difficult to say whether defense contractors will profit from upcoming conflicts. After all, the United States has been involved in multiple wars for two decades. 

Certainly, the rest of the economy could suffer during an international crisis. Putting more of your money into defense contractor stocks could help protect your investment portfolio from losses and balance the headwinds faced elsewhere.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.