Best defence stocks to buy in 2022
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From tanks to technology, the defence sector is vast and in-demand while catering to governments around the world. This beginners guide tells you what the best stocks in this industry are and whether they are a good investment.
What are the top defence stocks to buy?
Our analysts have selected their best five defence stocks for the year ahead listed in the table below. You can click each one’s ticker for up to date price information or continue reading to learn more.
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1. Lockheed Martin (NYSE: LMT)
Based just outside of Washington D.C, Lockheed Martin is one of the biggest defence companies in the world. Its business is diverse and is broken into four segments: aeronautics, missiles and fire control, rotary and mission systems, and space. It’s the market leader in producing the F-35 fighter Jet, the world’s most expensive plane.
It has long term contracts in place with its biggest customer, the U.S. government where 74% of its sales come from. Along with the F-35 fighter jet, LMT has six missile development programs and a classified development program scheduled to move to production between 2023 and 2026.
Lockheeds resilience on one main customer could raise concerns for some investors. However it works mostly on a contract basis and currently has nearly $150 billion in backlogged orders. Its 2020 sales were $65 billion suggesting it has over two years worth of contracts to fulfil. Together with its diversified business, LMT could be a good long term defence stock.
2. Northrop Grumman (NYSE: NOC)
Second spot on our list goes to one of the world’s largest military technology providers, Northrop Grumman. U.S. based, but with operations worldwide, NOC is made up of four sectors; Aeronautics, Mission Systems, Defence Systems, and Space Systems. Its produced some of the most advanced aircraft around, including stealth bombers and combat planes.
Similar to Lockheed Martin, Northrop does a lot of work with governments, especially the U.S. It recently secured a $2.6 billion contract from the Missile Defence Agency and is working with NASA to produce solid rocket boosters for its space launch program. In 2020 NOC was awarded a $13 billion contract to develop intercontinental ballistic missiles.
According to experts, Northrops technology and space programs give it a portfolio of products most in-line with the security goals of the Joe Bieden administration. This puts it in a strong position to win future government contracts. It’s been a strong performing stock, gaining over 700% in the past decade and that growth looks set to continue.
3. L3Harris Technologies (NYSE: LHX)
L3Harris was formed in 2019 as a result of a merger of L3 Technologies and Harris Corporation. It’s the sixth largest defence contractor in the United States and is organised under four business segments: Integrated Mission systems, space and airborne systems, communication systems, and aviation systems.
Headquartered in Florida, the company makes C6ISR systems and products, wireless equipment, avionics, tactical radios, electronic systems, night vision equipment, and surveillance solutions. Its products are mainly used by the U.S. government defence agencies, although it does operate a growing commercial business.
Its growth slowed in 2021 with revenues falling slightly short of the previous year due to supply chain issues and delays in being awarded contracts. Although it did receive a five-year contract worth nearly $500 million to deliver tactical jamming pods for the U.S army. Since it was formed in 2019, its increased dividend payments every year which makes it a good income stock in the defence sector.
4. General Dynamics (NYSE: GD)
General Dynamics is an American defense and aerospace company based in Virginia. It’s the third-largest defense contractor in the United States and the third largest in the world by sales. It’s one of the top defence ship making companies and was awarded a $9.6 billion contract by the U.S navy to build the first Columbia-class submarine.
It operates through four segments: Aerospace, combat systems, information technology, and marine systems. It’s aerospace segment owns Gulfstream Aerospace, a private jet designer and manufacturer. Its combat systems segment delivers vehicles, weapons systems and ammunition to the U.S. Government.
The technology segment of its business develops services to support programs for a wide range of military, federal, and local customers. While GD makes money from government contracts, its diversified product offerings mean it is not as reliant on them as other companies on this list making it a good option in the sector.
5. Boeing (NYSE: BA)
Best known for commercial planes, Boeing’s defence business makes up a large portion of its revenue and ranks with other giants in the industry. It makes many different types of fighter aircraft used by the military and is investing heavily into space. It is designing and building the Crew space transportation 100, which will take astronauts to the international space station.
Its space program also includes the Space Launch System, which will be the most powerful rocket ever. Similar to its commercial aircraft, it has a large fleet of fighter planes including the F-15. In 2020, Boeing received an order from the U.S. Air Force worth $23 billion to deliver upgraded versions of the F-15.
BA has a backlog in its defence, space, and security business of $58 billion, with one third of that figure representing orders outside of the United States. It has recently secured awards with the German navy and Austrian army. Boeing could make a good investment in the defence sector, especially as it operates a large scale commercial business as well.
Where to buy the best defence shares
If you want to buy the top defence stocks, you’ll first need to register with a broker. In the table below you can find a list of our expertly selected platforms. Offering low fees and easy to use services, click through to the links to get signed up right away.
What is a defence stock?
Defence stocks are companies that operate in the defence industry. Often, the main focus of these companies is to provide government agencies with products and services related to defence, although some companies also operate large commercial businesses.
Are defence shares a good investment?
Most of the time they are good investments. Generally, defence companies get the bulk of their revenue from one customer. That customer always tends to be a government, mostly the U.S government or its allies. Companies operating in this sector are often awarded multi-billion dollar contracts.
Defence companies revenues rely on geo-political environments, and with ongoing tradewars, cyber attacks, and wars, income for companies in this sector continues to grow. Government defence budgets have also been increasing and President Biden recently requested $750 billion in 2022 for national defence.
Stocks in this sector are often good long term investments and with many companies paying growing dividends, they also deliver consistent income to investors. Whatever you decide to do, it’s a good idea to conduct well balanced fundamental analysis prior to investing. Its also helpful to keep up to date with the latest news and analysis which you can do by clicking on the links below.
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