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The Boeing Company (BA): Among the Best American Defense Stocks To Buy According to Hedge Funds
“Geopolitics can be expected to drive increased defense spending in the years ahead, creating solid investment opportunities,” said Steve Barry, global head of fundamental equity at Goldman Sachs Asset Management, in a midyear outlook report. Around two and a half years ago, the global landscape shifted dramatically due to Russia's full-scale invasion of Ukraine. This invasion heightened geopolitical tensions and pushed NATO and European nations to reevaluate their security policies after years of relative complacency, recognizing the looming threat on their borders. In October of last year, another pivotal event occurred when Hamas attacked an Israeli music and arts festival, sparking a powerful military response from Israel in the Gaza Strip. These events have further solidified the focus on national security, making it a central issue in political discussions worldwide.
It's well known that investing in defense contractors tends to pay off when geopolitical tensions rise, but Wall Street sees more driving the latest rally. The recent surge in shares of weapons and aircraft manufacturers, fueled by escalating conflicts in the Middle East, is just part of the story. Analysts point to several other factors poised to push these stocks even higher. These include the Federal Reserve's easing cycle, the prospect of lucrative contracts for aerospace firms as airlines update their fleets, and the sector's relatively low exposure to risk from the upcoming U.S. presidential election. While the election outcome remains uncertain, one thing appears likely: regardless of who wins, military spending in the U.S. is poised to increase in 2025 and beyond. Both the Biden-Harris administration and current lawmakers have already demonstrated their willingness to boost defense budgets, with the Senate and House having approved an increase in the 2025 Pentagon budget, which includes additional funding for the F-35 fighter jet program.
On an October 1 episode of CNBC's The Exchange, Sheila Kahyaoglu, a defense analyst at Jefferies, discussed the impact of Iran's missile strikes on defense stocks, while also examining U.S. defense spending in the context of ongoing global conflicts, highlighting how these developments could influence the defense sector:
"Investors have been positioned very bullishly, given what the S&P has been doing, making all-time highs several times this year. So, we're seeing that rotation reversal into the defense names like the Boeings of the world, which have a little bit more data. In terms of the defense budget though, what we're seeing is a continuing revolution running through fiscal 2025 that starts today. So basically, we're seeing the can kicked down the road until after the election. Our base case for that, including inflation, is about 3% growth."
In another vein, the space sector is emerging as a vital component of the defense industry's future. U.S. spending on space-related defense initiatives has surged, with the U.S. Space Force (USSF) requesting $30.1 billion for fiscal year 2024—a 15% increase from the prior year. This upward trend is expected to persist into 2025 and beyond. As the largest user of satellite services in the military, the U.S. Army depends heavily on space-based assets for essential functions such as communication, navigation, weather forecasting, and early missile launch detection.
Our Methodology
To compile our list of the best American defense stocks, we started by identifying the largest companies in the defense sector. Next, we analyzed hedge fund sentiment for these firms using Insider Monkey’s proprietary database, which tracks 912 elite money managers. We then focused on the stocks that were most widely held by hedge funds and ranked them in ascending order based on the number of hedge fund holders as of Q2 2024.
At Insider Monkey we are obsessed with the stocks that hedge funds pile into. The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A commercial jetliner parked at an airport, reflecting the companies success in aviation.
The Boeing Company (NYSE:BA) is a leading American multinational corporation specializing in the design, production, and sale of aircraft, rotorcraft, rockets, satellites, telecommunications equipment, and missiles globally. The company also provides leasing and product support services.
The Boeing Company (NYSE:BA) reported a disappointing Q3 earnings report, with the company's net loss coming in at $6.17 billion, bringing its total losses for 2024 so far to nearly $8 billion, along with a negative operating cash flow of $1.34 billion. Revenue was around $17.8 billion, a slight 1% decrease from the same period last year, aligning closely with earlier projections. On the earnings call, CFO Brian West noted Boeing expects additional cash outflows in Q4 and projects negative free cash flow for the full year of 2025. "Turning this big ship around will take time, but when it does, it has the potential to be great again," he said in a message to employees.
On a positive note, Boeing's cash and cash equivalents (including short-term and other investments) stood at $10.47 billion by the end of Q3 2024, surpassing its current debt of $4.47 billion.
To address financial challenges and operational inefficiencies, The Boeing Company (NYSE:BA) filed a registration statement with U.S. regulators, allowing it to raise up to $25 billion through debt securities and other stock offerings. Additionally, the company managed to secure a $10 billion credit line from a consortium of banks, including BofA, to strengthen its financial position in light of a major worker strike affecting production.
Overall BA ranks 8th on our list of the best American defense stocks to buy according to hedge funds. While we acknowledge the potential of BA as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than BA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
