SA Asks: Which defense stock is the best long-term investment?
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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.”