Top Defense Stocks for Q1 2021


The defense industry provides modern weaponry, combat vehicles, ships, and fighter jets. They also offer cyber security, information technology (IT), analytics, robotics, and intelligence systems. Some big defense companies include Lockheed Martin Corp. (LMT), Raytheon Technologies Corp. (RTX), and Northrop Grumman Corp. (NOC). The industry provides security and defense solutions primarily for the U.S. military, but also for law enforcement agencies and foreign governments. Some defense companies have experienced delays and disruptions due to the impact of the COVID-19 pandemic.

Defense stocks are best represented by the Invesco Aerospace & Defense ETF (PPA), although the fund targets both the defense and aerospace industries. While it may not perfectly reflect the defense industry, there is significant overlap between these two industries. PPA has dramatically underperformed the broader market. It has provided a total return of 0.6% over the past 12 months, well below the Russell 1000’s total return of 23.2%. These performance figures and all statistics in the tables below are as of December 4.

Here are the top 3 defense stocks with the best value, the fastest earnings growth, and the most momentum.

Best Value Defense Stocks

These are the defense stocks with the lowest 12-month trailing price-to-earnings (P/E) ratio. Because profits can be returned to shareholders in the form of dividends and buybacks, a low P/E ratio shows you’re paying less for each dollar of profit generated.

Best Value Defense Stocks

 

Price ($) Market Cap ($B) 12-Month Trailing P/E Ratio
Maxar Technologies Inc. (MAXR) 30.60 1.9 4.9
Huntington Ingalls Industries Inc. (HII) 167.69 6.8 11.5
General Dynamics Corp. (GD) 156.04 44.8 14.2

Source: YCharts

  • Maxar Technologies Inc.: Maxar Technologies is a space technology company. It provides satellite telecommunication services, robotics, Earth imagery, geospatial data, analytics, and insights. For Q3 2020, Maxar saw a 5.6% year-over-year (YOY) increase in revenue as the company benefited from a significant backlog of commercial and military contracts. Net income was $85 million versus a net loss of $25 million for Q3 2019. Net income was bolstered by an $85 million gain on remeasurement of the previously held equity interest in Vricon, a geospatial intelligence company. Maxar closed on the acquisition of the remaining 50% ownership interest in Vricon in July.
  • Huntington Ingalls Industries Inc.: Huntington Ingalls is a shipbuilding company. It designs, builds, and maintains nuclear and non-nuclear ships for the U.S. Navy and Coast Guard. The company also develops non-nuclear ships, assault ships, and provides various professional services, including fleet support, oil and gas services, and more.
  • General Dynamics Corp.: General Dynamics, one of the nation’s primary builders of nuclear-powered submarines for the U.S. Navy, is an aerospace and defense company that offers aviation, combat vehicles, weapons systems, munitions, shipbuilding design and construction, information systems, and technologies. In November, the company’s Electric Boat division was awarded a $9.5 billion contract from the U.S. Navy for construction and testing of Columbia class submarines.

Fastest Growing Defense Stocks

These are the defense stocks with the highest YOY earnings per share (EPS) growth for the most recent quarter. Rising earnings show that a company’s business is growing and is generating more money that it can reinvest or return to shareholders.

Fastest Growing Defense Stocks

 

Price ($) Market Cap ($B) EPS Growth (%)
Huntington Ingalls Industries Inc. (HII) 167.69 6.8 45.7
Cubic Corp. (CUB) 62.61 2.0 35.3
Northrop Grumman Corp. (NOC) 307.23 51.2 7.3

Source: YCharts

  • Huntington Ingalls Industries Inc.: See above for company description.
  • Cubic Corp.: Cubic offers instrumented air and ground combat training systems as well as battle command training and simulation support for the military. Additionally, the company markets avionics, data links, and other communications products.
  • Northrop Grumman Corp.: Northrop Grumman is a maker of aircraft and space-related products, including radars, sensors, and surveillance systems, along with cybersecurity and information technology solutions. On December 7, the company announced plans to sell its federal IT and mission support services businesses to Veritas Capital for $3.4 billion in an all-cash transaction. The acquisition is expected to close in the first half of 2021, pending regulatory approval.

Defense Stocks with the Most Momentum

These are the defense stocks that had the highest total return over the last 12 months.

Defense Stocks with the Most Momentum

 

Price ($)

Market Cap ($B) 12-Month Trailing Total Return (%)
Maxar Technologies Inc. (MAXR) 30.60 1.9 181.3
Axon Enterprise Inc. (AAXN) 124.18 7.9 70.7
AeroVironment Inc. (AVAV) 90.47 2.2 47.6
Russell 1000 N/A N/A 23.2
Invesco Aerospace & Defense ETF (PPA) N/A N/A 0.6

Source: YCharts

  • Maxar Technologies Inc.: See above for company description.
  • Axon Enterprise Inc.: Axon Enterprises develops and manufactures security systems. It offers law enforcement, military, and defense solutions. For Q3 2020, Axon reported a 27% YOY increase in revenue as the company saw strength in almost all of its product lines. Axon’s performance for the quarter was driven by strong North American demand for its body cameras and cloud software products, as well as increased federal demand for its TASER products.
  • AeroVironment Inc.: AeroVironment designs and manufactures small unmanned aircraft as well as fast-charge systems for electric industrial vehicle batteries. The company also sells antennae, sensors, and missile systems to customers in the U.S.
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