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As geopolitical tensions show little sign of easing anytime soon, many investors have been looking at defense stocks again.
On Saturday we asked our analysts Which defense stocks are the best short-term investment right now? Today’s question is: Which Are defense stocks 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: In the long run, I still like Lockheed Martin (New York Stock Exchange:LMT). The stock is not cheap compared to its average valuation, but the company has a solid product portfolio along with strong returns to shareholders in the form of dividends and share buybacks.
Jere Wang of JR Research: I prefer RTX (New York Stock Exchange:RTX) as a long-term investment, given its well-diversified exposure to the defense contracting and commercial aerospace businesses. It provides a more balanced setup to mitigate concentration risks in the defense business.
Ideas of deep value: Clearly, RTX (RTX). The company is very well diversified in commercial aviation and defense and has a very strong order book. Thanks to 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. Therefore, I expect it to report only a modest impact on earnings even in a significant downturn, so it should even be able to continue paying and increasing its dividend in such an environment.
Leo Nelissen: Long term, I like most of the major defense companies. Aside from L3Harris (New York Stock Exchange:LHX) and RTX (RTX), I like – and own – Lockheed Martin (LMT) and Northrop Grumman (New York Stock Exchange:NOC), two companies with significant orders for missile defense, next-generation aviation, communications, and other programs. Northrop Grumman also has a significant drone program, including underwater drones, which are in the development phase, and advanced surveillance drones that are selling like hotcakes in this defense environment.
Besides that, I like smaller players like AeroVironment (NASDAQ: AVAV), which is innovating in the field of small drones, an industry that has revolutionized modern warfare in Ukraine.
Overall, I’m optimistic about the industry and think it’s hard to go wrong with any of the “big guys.”