In H2 2023, investors seeking opportunities in the defense sector will find several compelling options among the best US defense stocks. The fiscal year brings forth potential growth prospects in areas such as missile defense, aerospace, cyber, unmanned systems, fighter jets, radar, cybersecurity, naval, and avionics. With increasing defense spending, procurement contracts from the Pentagon, and a focus on national security, defense companies, and contractors are well-positioned for success. This overview covers the latest developments in the defense industry, including defense news, dividend prospects, defense contracts, and the evolving landscape of global defense and homeland security.
Top 4 Best Defense Stocks To Buy in 2023
Top 4 Best US Defense Stocks to Buy in 2023
Lockheed Martin
Lockheed Martin, the largest defense company globally and the United States government’s primary contractor holds a prominent position in the industry. It is the lead contractor for the F-35 Joint Strike Fighter, acknowledged as the world’s most costly aircraft. Through its research capabilities, Lockheed Martin has established itself as a leader in advanced fighter planes, state-of-the-art missiles, and cutting-edge electronics. It boasts a prominent and well-established reputation worldwide.
On July 2, Israel said it would acquire 25 F-35 jets from Lockheed Martin for $3 billion, further solidifying its significance and influence in the defense market.
Over the past three years, Lockheed Martin has achieved an average annual revenue growth rate of 3.4%. This growth can be attributed to increased production volumes in notable programs such as Sikorsky helicopters, AC-3, Long Range Anti-Ship Missiles, and the Joint Air-to-Surface Standoff Missile program. The sales growth of Lockheed Martin has been primarily driven by a higher volume of production contracts for the F-35 program and the national security space program. This upward trend is expected to persist in the near future, further contributing to the company’s success.
The stock closed June 30 at $460.38, and the average target price on the stock is $508.79, a potential upside of over 9.5%. Add the 2.67% dividend yield; you could make over 12% on your investment in a year.
Raytheon Technologies
Raytheon Technologies, the defense giant resulting from the merger of Raytheon and United Technologies in 2020, is poised for substantial growth. With the anticipated rise in defense spending driven by geopolitical tensions, NATO expansion, and the need for equipment replacement following the conflict in Ukraine, Raytheon is well-positioned to capitalize on these opportunities. This stock from the aerospace and defense sector is down almost 3% this year and has seen a gain of only 5.4% over the last 12 months. But by 2025, the company aims to expand its profit margins by 5.5% to 6.5% and achieve annual revenue growth between 6% and 7%.
Furthermore, Raytheon forecasts a remarkable $9 billion in free cash flow by 2025 and plans to return at least $33 billion to its shareholders within the same timeframe. To support these goals, the company has raised its gross cost synergy target from $1.5 billion to $2 billion and increased its estimated net cost reduction to $2.2 billion by 2025. The additional $500 million in expected cost synergies will counterbalance the rising cost challenges and assist the company in meeting its medium-term objective of elevating its segment profit margin from 9.9% in 2022 to a range of 13.6% to 14.6% in 2025 while generating $9 billion in free cash flow.
The stock closed June 30 at $97.96, and the average target price on the stock is $109.50, a potential upside of over 10.5%. Add the 2.46% dividend yield; you could sit on a healthy gain of around 13% in 12 months.
Northrop Grumman Corp
Northrop Grumman, a prominent producer of weapons and military technology globally, stands as one of the leaders in the defense industry. Northrop is well-positioned to surpass its peers in the long term, backed by an ambitious capital return program that favors shareholders. Over the past two decades, Northrop’s shares have demonstrated exceptional performance, nearly tripling the returns of the S&P 500 index. The company thrives in conflict; given the ongoing state of global affairs, conflicts are likely to persist.
While Northrop faces execution risks associated with its B-21 and Sentinel programs, the strategic significance of these programs helps mitigate those risks. In Q1 2023, Northrop experienced a mixed quarter. Although it surpassed analysts’ expectations, its sales growth was only 6% compared to the same period in the previous year. Quarterly profits declined by 10%. The management attributed these results to lower profit margins within the aeronautics segment, as supply chain headwinds took their toll on E-2 airborne early warning aircraft production volumes, F/A-18 fighter jets, Global Hawk drones, and F-35 stealth fighters.
The company has a “space” ace up its sleeve. Driven by increasing demand for space systems, the company has witnessed consistent growth in its order backlog over the past few years. From $65 billion in 2019, the backlog has risen to its current value of $77 billion. The stock closed June 30 at $455.80, and the average target price on the stock is $512.47, a potential upside of over 11%. The company is scheduled to report its Q2 2023 numbers on July 27. We could be in for a positive surprise.
General Dynamics
The last stock on our list could be the genie in the bottle. General Dynamics stock dropped 13.46% in 2023. General Dynamics, a global aerospace and defense company, faced supply chain challenges in Q1, resulting in a decline in their stock price to $205.5 on May 4, a level that has yet to be seen since January 2022. Despite the company’s efforts to mitigate these issues, such as increasing its quarterly dividend by approximately 5% in early March and reporting strong first-quarter revenue and free cash flow on April 26, these events did not sustain the stock.
General Dynamics offers various products and services, including business aviation, ship construction and repair, land combat vehicles, weapons systems, munitions, and technology products and services. The company is a crucial producer of vehicles and systems for the US military. Although the broader defense industry has seen reduced supply chain disruptions, General Dynamics is still recovering from these challenges. The growing demand for Combat Systems and the improving performance of the Technologies segment have helped offset the supply chain problems faced by the Aerospace and Marine Systems segments. With a strong balance sheet and robust cash flow generation, General Dynamics can support acquisitions, dividend growth, and share buybacks. As of June 30, the stock closed at $215.15. In recent weeks, General Dynamics has secured several orders. On June 27, the US Army selected their Land Systems business unit to advance in the XM30 Mechanized Infantry Combat Vehicle competition, a deal worth $769 million. Additionally, their Land Systems unit obtained a modification contract for low-rate initial production of the M10 Booker combat vehicle by the US Army, valued at $258 million. Furthermore, on June 28, General Dynamics Information Technology (GDIT), a business unit of General Dynamics, announced the award of two contracts worth $580 million for its Intelligence & Homeland Security Division. The stock closed June 30 at $215.15, and the average target price on the stock is $261.22, a potential upside of over 17.5%. Add the 2.5% dividend payout, and you could be sitting on an upside of over 20%.
This Options Discord Chat is The Real Deal
While the internet is scoured with trading chat rooms, many of which even charge upwards of thousands of dollars to join, this smaller options trading discord chatroom is the real deal and actually providing valuable trade setups, education, and community without the noise and spam of the larger more expensive rooms. With a incredibly low-cost monthly fee, Options Trading Club (click here to see their reviews) requires an application to join ensuring that every member is dedicated and serious about taking their trading to the next level. If you are looking for a change in your trading strategies, then click here to apply for a membership.