In an incredible turn of events last weekend, it was reported by various news outlets that a four-star U.S. Air Force general said in a letter that his gut told him the United States would fight China in the next two years. Of course, Pentagon officials immediately pushed back on the general, saying that those comments were not in line with current American military assessments.
The mere fact that a startling assessment like that from a high-ranking officer could even be released is more than a little unnerving. When you combine the potential for war with China and a drawdown of U.S. armaments due to the military aid being sent to Ukraine, the big defense companies could be in for some massive demand. That is, demand far and above the current needs for the U.S. military.
With the Russian-Ukrainian war now grinding into its second year, not only are arms and heavy equipment being hustled to Ukraine, but many American allies have taken the aggression from Russia very seriously and are adding to their own arsenals. The Japanese ruling party has called for the doubling of defense spending in the wake of Chinese saber-rattling over Taiwan, and European allies are trending the same way.
We screened our 24/7 Wall St. defense and aerospace research database looking for the top companies with Buy-rated stocks and that pay solid and dependable dividends. The following six top companies hit our screens. It is important to remember though that no single analyst report should be used as a sole basis for any buying or selling decision.
Like other major defense contractors, General Dynamics Corp. (NYSE: GD) looks poised to deliver solid numbers and guidance. It is engaged in business aviation, land and expeditionary combat vehicles and systems, armaments, munitions, shipbuilding and marine systems, and information systems and technologies.
Major products include Virginia-class nuclear-powered submarine and Ohio class replacement, Arleigh Burke-class Aegis, Abrams M1A2 tank, Stryker 8-wheeled assault vehicle, medium-caliber munitions and gun systems, tactical and strategic mission systems.
The company just reported fourth-quarter results that were in line with expectations on the top and bottom lines.
Investors receive a 2.22% dividend. Citigroup’s $268 price target on General Dynamics stock is a Wall Street high. The consensus target is $268.00 as well, and shares closed on Tuesday at $233.06.
Spun off from Northrop Grumman in 2011, this is a premier military shipbuilding company. Huntington Ingalls Industries Inc. (NYSE: HII) engages in designing, building, overhauling and repairing military ships in the United States.
The company is involved in the design and construction of non-nuclear ships, comprising amphibious assault ships, expeditionary warfare ships, surface combatants and national security cutters for the U.S. Navy and U.S. Coast Guard. It also provides nuclear-powered ships, such as aircraft carriers and submarines, as well as refueling, overhaul and inactivation services of ships.
In addition, Huntington Ingalls offers naval nuclear support services, including fleet services comprising design, construction, maintenance and disposal activities for in-service of U.S. Navy nuclear ships, as well as maintenance services on nuclear reactor prototypes.
The company also provides life-cycle sustainment services to the U.S. Navy fleet and other maritime customers; high-end information technology and mission-based solutions for U.S. Department of Defense, intelligence and federal civilian customers; nuclear management and operations and environmental management services for the Department of Energy, Defense Department, state and local governments, and private sector companies; defense and federal solutions; and unmanned systems.
Huntington Ingalls stock comes with a 2.27% dividend. Barclays has a $270 target, and the consensus target is $260.40. The stock closed at $220.54 on Tuesday.
This is another top aerospace and defense stock to buy, and it still offers investors looking to buy shares a solid entry point. Lockheed Martin Corp. (NYSE: LMT) researches, designs, develops, manufactures, integrates, operates and sustains advanced technology systems, products and services. It also provides a wide range of defense electronics products and IT services.
Being the Pentagon’s prime contractor, Lockheed Martin offers a diverse portfolio of global aerospace, defense, security and advanced technologies. Its leveraged presence in the Army, Air Force, Navy and IT programs guarantees a steady inflow of follow-on orders, not only from the U.S. government but also from many foreign allies of the nation.
Over the past several years, Lockheed Martin’s backlog has substantially outgrown the rest of the industry, supporting the growth outlook for the foreseeable future. The company has exposure to Defense Department priority buckets and consistently executes well. Even if the end market growth rate slows, continued strong fundamentals can be expected, with compounding earnings and cash flows.
The company posted solid results last week and raised guidance for 2023.
The dividend yield here is 2.61%. DZ Bank’s price objective of $523 is well above the $483.00 consensus target for Lockheed Martin stock. Tuesday’s close was at $463.26 a share.
L3 Harris Technologies
After its 2019 merger, this became the sixth-largest defense company. L3 Harris Technologies Inc. (NYSE: LHX) is an agile global aerospace and defense technology innovator engaged in the provision of defense and commercial technologies across air, land, sea, space and cyber domains.
Its Integrated Mission Systems segment includes intelligence, surveillance and reconnaissance; advanced electro optical and infrared; and maritime power and navigation. The Space and Airborne Systems segment comprises space payloads, sensors and full-mission solutions; classified intelligence and cyber defense; avionics; and electronic warfare.
Top Wall Street analysts have felt for some time that L3 Harris Technologies is situated well in the high growth buckets of the Defense Department budget, and many believe the business is not as short-cycle as the market historically has perceived. Merger synergies give the business a unique path to cash flow and margin upside, along with above-average revenue growth.
Shareholders receive a 2.11% dividend. The Truist Financial price target is $255. L3 Harris Technologies stock has traded as high as $279.71 in the past year but closed on most recently at $214.82.
This was ranked as one of the top five defense contractors by sales last year, and it is on the BofA Securities US 1 list of top stock picks. Northrop Grumman Corp. (NYSE: NOC) provides innovative systems, products and solutions in unmanned systems, cyber, C4ISR and logistics and modernization to government and commercial customers worldwide.
The Aerospace Systems segment designs, develops, integrates and produces manned aircraft, unmanned systems, spacecraft, high-energy laser systems, microelectronics and other systems and subsystems.
The Information Systems segment offers advanced solutions for the Defense Department, national intelligence and federal civilian, state, international and commercial customers. It provides products and services primarily in the fields of command and control, communications, cyber, air and missile defense, intelligence processing, civil security, health information technology, and government support systems.
The Technical Services segment provides logistics, modernization and sustainment services, as well as other advanced technology and engineering services, including space, missile defense, nuclear security, training and simulation services.
Investors receive a 1.58% dividend. The $650 BofA Securities price objective is much higher than the $526.72 consensus target. Northrop Grumman stock closed trading on Tuesday at $448.04.
This top aerospace and defense idea has a diversified mix of businesses. Raytheon Technologies Corp. (NYSE: RTX) is an industry leader in defense, government electronics, space, information technology and technical services.
With a history of innovation spanning 97 years, Raytheon provides state-of-the-art electronics, mission systems integration, C5I products and services, sensing, effects and mission support for customers in more than 80 countries.
In 2020, United Technologies and Raytheon agreed to merge their businesses to create this new aerospace and defense powerhouse. The two-year-old merger, combined with the spin-off of the Carrier and Otis divisions in 2020, has top analysts across Wall Street expecting free cash flow to step up in a big way this year. Toss in the solid recovery in air travel and improving sentiment that could help drive the commercial aerospace business.
Shareholders receive a 2.23% dividend. Raytheon Technologies stock has a $115 price objective at Morgan Stanley. The consensus target is $108.83, and Raytheon Technologies stock closed at $99.85 on Tuesday.
Despite the strong January rally, we are still in a bear market that has strong potential to trade down an additional 15% from current levels. With the geopolitical situations in various parts of the world very tense and on-the-ground fighting raging in Ukraine, it is a good bet these companies will continue to receive orders from around the world. For now, these defense leaders may be among the safer ideas for the rest of the year and into 2024.
Originally published at 24/7 Wall St.
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