11 Best American Defense Stocks To Buy According to Analysts
In this piece, we will take a look at the 11 best American defense stocks to buy according to analysts. If you want to skip our coverage of the latest events in the defense sector and the top weapons and firms, then you can take a look at the 5 Best American Defense Stocks To Buy According to Analysts.
The defense industry, despite all the footage of F-16s firing missiles, is a rather less glamorous sector. Defense companies make all kinds of armaments and combat equipment, both lethal and non-lethal. From Lockheed Martin Corporation (NYSE:LMT)'s fourth generation war fighters like the F-16, or Superior Group of Companies, Inc. (NASDAQ:SGC)'s uniforms, each product plays a crucial role in sustaining a war machine regardless of whether there's peace or war.
However, when it comes to talking about pure play defense stocks, these are firms that make weapons or provide direct services to the military. From bullets to missiles, defense stocks benefit from having a stable customer in the form of governments. So while firms such as Apple Inc. (NASDAQ:AAPL) or Microsoft Corporation (NASDAQ:MSFT) are subject to the whims of their customers, others like The Boeing Company. (NYSE:BA) and Northrop Grumman Corporation (NYSE:NOC) know that not only will they be required to service existing stockpiles, but also that a need to continuously keep themselves abreast of the latest developments in high technology industries such as materials science and aerospace engineering is indispensable.
After a brief period of stability following America's withdrawal from Afghanistan, the world was plunged into war once again as Russia invaded Ukraine in 2022. Since then, not only has the Ukraine invasion endured and seen the Eastern European nation take on one of the biggest militaries in the world, but conflict in the Middle East has also expanded. 2024 ushered in the first U.S. deaths in the Middle East since the attack on Israel.
When we talk about defense stocks, one common claim is that as soon as there's a war in which their equipment might be involved (i.e. demand creation), the share prices of defense companies surge. (i.e. investors prepare for growth) For U.S. defense stocks, this claim stood the test of time at the onset of the Russian invasion. As an example, consider the shares of Lockheed Martin Corporation (NYSE:LMT) and Northrop Grumman Corporation (NYSE:NOC), two of America's biggest nearly pure play defense stocks.
After the Russian invasion began on February 24th, 2022, Lockheed's shares surged by over 19% over the next two weeks before losing all their gains over the course of the next seven months. The stock roared back to life over the course of the next weeks, and since the start of hostilities and since Hamas's attack, the stock is up by 6%.
Similarly, Northrop's shares also surged during late February and in October after marking a 4% drop earlier this year in the wake of the company's earnings report. This report, which covered Northrop Grumman Corporation (NYSE:NOC)'s earnings for the fourth quarter of and full year 2022 saw the American defense stock's earnings share and sales grow 25% and 16%, respectively. However, the stock fell as Wall Street was not impressed by a 30% net earnings drop for the full year.
Even though they might experience some periodic turbulence, American defense stocks are nevertheless at the top of the global food chain. As an illustration, consider our coverage of the Top 20 Most Valuable Defense Companies in the World. Within this list, out of the top five most valuable defense stocks, four were American. Along with Lockheed and Boeing, the top four defense stocks included the Charlotte, Carolina based industrial conglomerate Honeywell International Inc. (NASDAQ:HON) and missile manufacturer RTX Corporation (NYSE:RTX).
But what about Wall Street? After all, if investment banks and hedge funds are such savvy gurus, then they must possess some uncanny ability to 'sense' when an American defense stock's fortunes will rise. Well, we can see if investment bank The Goldman Sachs Group, Inc. (NYSE:GS) was thinking ahead as it tinkered with its investment portfolio during the second quarter of 2023. We took a look at Goldman Sachs's defense and aerospace stock portfolio as part of our coverage of Goldman Sachs Defense Stocks: Top 10 Stock Picks.
For reference, during Q2 2023, the Russian invasion of Ukraine had marked its first anniversary and the Hamas attack was on the horizon. During this period, while Goldman Sachs's top five defense stock picks were all American defense stocks, the bank's favorite defense stock was Lockheed whose jets are so far unmatched globally in stealth technology. RTX (formerly Raytheon) and Boeing were the next two American defense stocks. When we analyze Goldman Sachs's stock portfolio for Q3 2023, we find that the bank trimmed its stake in Lockheed and RTX by 11% and in Boeing by 3%. All these American defense stocks were also present in our coverage of Top 16 Defense Contractors in the World in 2023, with Lockheed, RTX, Boeing, and General Dynamics Corporation (NYSE:GD) taking the first four places.
With these details in mind, let's take a look at the best American defense stocks to buy according to analysts. Some top analyst American top defense stock picks are Rocket Lab USA, Inc. (NASDAQ:RKLB), Planet Labs PBC (NYSE:PL), and V2X, Inc. (NYSE:VVX).
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Our Methodology
To make our list of the best American defense stocks according to analysts, we ranked the 40 most valuable American aerospace and defense stocks by their average analyst share price upside and picked out the top stocks. The list was then further refined to remove those stocks that catered purely to civilian needs.
For these top American defense stocks, we used hedge fund sentiment. Hedge funds’ top 10 consensus stock picks outperformed the S&P 500 Index by more than 140 percentage points over the last 10 years (see the details here). That’s why we pay very close attention to this often-ignored indicator.
11 Best American Defense Stocks To Buy According to Analysts
11. Spirit AeroSystems Holdings, Inc. (NYSE:SPR)
Average Analyst Share Price Target Upside: 18.26%
Average Analyst Share Price Target: $33.16
Spirit AeroSystems Holdings, Inc. (NYSE:SPR) is a small but consequential firm when it comes to military aircraft. This is because its expertise with air frames - the backbone of a plane - is leveraged through the industry. The shares are rated Buy on average, but the firm has missed analyst EPS estimates in three of its four latest quarters. However, the American defense stock soared in January 2024 after Boeing delivered the 737 Max to China.
During Q3 2023, 27 out of the 910 hedge funds tracked by Insider Monkey had bought and owned Spirit AeroSystems Holdings, Inc. (NYSE:SPR)'s shares. Herbert Frazier's Hill City Capital was the largest shareholder due to its $83.6 million investment.
Just like Planet Labs PBC (NYSE:PL), Rocket Lab USA, Inc. (NASDAQ:RKLB), and V2X, Inc. (NYSE:VVX), Spirit AeroSystems Holdings, Inc. (NYSE:SPR) is a top American defense stock according to analysts.
10. Kratos Defense & Security Solutions, Inc. (NASDAQ:KTOS)
Average Analyst Share Price Target Upside: 20.60%
Average Analyst Share Price Target: $20.55
Kratos Defense & Security Solutions, Inc. (NASDAQ:KTOS) is a diversified American defense stock that dabbles in technologies such as hypersonic travel, engine propulsion, and satellite communications. The firm is busy keeping up with the latest technologies, as it announced that it had acquired a 3D printing firm in January 2024.
By the end of last year's third quarter, 11 out of the 910 hedge funds polled by Insider Monkey were the firm's shareholders. Kratos Defense & Security Solutions, Inc. (NASDAQ:KTOS)'s biggest hedge fund investor is Catherine D. Wood's ARK Investment Management as it holds a $94.1 million stake.
9. Triumph Group, Inc. (NYSE:TGI)
Average Analyst Share Price Target Upside: 52.49%
Average Analyst Share Price Target: $9.50
Triumph Group, Inc. (NYSE:TGI) is a defense aerospace company that sells products such as shock absorbers, engine controls, and other items to military aircraft manufacturers. The American defense stock's been having a great time in 2024, as Baird and BofA upgraded the shares to Outperform and Buy from Neutral and Underperform in January 2024, respectively.
During 2023's September quarter, 21 out of the 910 hedge funds part of Insider Monkey's survey had held a stake in Triumph Group, Inc. (NYSE:TGI). Out of these, the biggest shareholder was Herbert Frazier's Hill City Capital as it held 5.3 million shares that are worth $41 million.
8. Smith & Wesson Brands, Inc. (NASDAQ:SWBI)
Average Analyst Share Price Target Upside: 23.06%
Average Analyst Share Price Target: $16.17
Smith & Wesson Brands, Inc. (NASDAQ:SWBI) marks a classical start to our list of the best American defense stocks. It is one of the most iconic gun brands in the U.S.. Even though the firm has had a busy 2024 so far by launching two new guns, it is currently facing an interesting lawsuit that holds Smith & Wesson Brands, Inc. (NASDAQ:SWBI) accountable for not using smart gun technology on its weapons - charges that the firm denies.
By the end of Q3 2023, six out of the 910 hedge funds part of Insider Monkey's database had bought a stake in Smith & Wesson Brands, Inc. (NASDAQ:SWBI).
7. Mercury Systems, Inc. (NASDAQ:MRCY)
Average Analyst Share Price Target Upside: 24.81%
Average Analyst Share Price Target: $38.13
er Monkey had Mercury Systems, Inc. (NASDAQ:MRCY) is a defense semiconductor company that sells integrated controllers and associated products. The firm scored a win in February 2024 when it won a $96 million contract from RTX to provide signal processing chips for the Army's missile defense systems.
During 2023's September quarter, 21 out of the 910 hedge funds tracked by Insider Monkey were the firm's shareholders. Barry Rosenstein's JANA Partners was Mercury Systems, Inc. (NASDAQ:MRCY)'s biggest hedge fund shareholder due to its $174 million stake.
6. Ducommun Incorporated (NYSE:DCO)
Average Analyst Share Price Target Upside: 30.34%
Average Analyst Share Price Target: $65.60
Ducommun Incorporated (NYSE:DCO) provides computer hardware such as cables and circuit boards to American defense companies. Its shares are rated Buy on average, and the average analyst share price target is $65.60.
Insider Monkey's third quarter of 2023 survey covering 910 hedge funds revealed that 11 had held a stake in Ducommun Incorporated (NYSE:DCO). Mario Gabelli's GAMCO Investors was the firm's largest investor through its 387,336 shares that were worth $16.8 million.
Rocket Lab USA, Inc. (NASDAQ:RKLB), Ducommun Incorporated (NYSE:DCO), Planet Labs PBC (NYSE:PL), and V2X, Inc. (NYSE:VVX) are some top American defense stocks according to analysts.
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Disclosure: None. 11 Best American Defense Stocks To Buy According to Analysts is originally published on Insider Monkey.