Updated on November 16th, 2021 by Bob Ciura
Investing in defense stocks has been a big win for shareholders. In the last 10 years, the iShares Dow Jones U.S. Aerospace & Defense ETF (ITA) has generated annualized returns of 14.9% per year.
With this in mind, we created a downloadable spreadsheet that focuses on defense stocks.
The list was derived from two major defense industry-focused exchange traded funds, ITA and the SPDR S&P Aerospace & Defense ETF (XAR).
You can download an Excel spreadsheet of all defense stocks (with metrics that matter such as dividend yields and price-to-earnings ratios) by clicking the link below:
Is there more room for these stocks to run going forward?
This article will look at the top 7 defense stocks according to the Sure Analysis Research Database.
We rank these 7 defense stocks by our expected 5-year expected returns.
Table of Contents
Defense Stock #7: Raytheon Technologies (RTX)
- Estimated Annual Returns: 3.3%
Raytheon Technologies was created on April 3rd, 2020, after the completion of the merger between Raytheon
and United Technologies, following United Technologies’ spin–offs of its Carrier (CARR) and Otis (OTIS) businesses.
The combined business, is one the largest aerospace and defense companies in the world with $57 billion in 2020 sales and a global team of 195,000 employees, including 60,000 engineers and scientists.
Source: Investor Presentation
The company has four segments: Collins Aerospace Systems, Pratt & Whitney, Raytheon Intelligence & Space and Raytheon Missiles & Defense.
Click here to download our most recent Sure Analysis report on Raytheon (preview of page 1 of 3 shown below):
Defense Stock #6: Textron (TXT)
- Estimated Annual Returns: 4.2%
Textron Inc. is a diversified conglomerate. The company develops and manufactures military aircraft, military munitions, civilian aircraft, recreational vehicles, engines, etc. Textron also provides services and maintenance.
The company is organized into five business segments: Textron Aviation, Bell Helicopter, Textron Systems, Industrial, and Finance.
Source: Investor Presentation
Textron receives about 60% of its annual revenue from the Aviation and Bell segments. Major brands include Bell, Cessna, Beechcraft, Hawker, Lycoming, Arctic Cat, Cushman, and EZ–GO.
Click here to download our most recent Sure Analysis report on Textron (preview of page 1 of 3 shown below):
Defense Stock #5: General Dynamics (GD)
- Estimated Annual Returns: 5.3%
General Dynamics has increased its dividend for 30 years in a row. As a result, it is on the exclusive Dividend Aristocrats list.
General Dynamics operates four business divisions. Aerospace produces the high-end Gulf Stream private jet. Combat Systems makes combat vehicles like the Abrams battle tank.
Information Systems & Technology provides fire-control systems for ships as well as programs for cyber security. Marine Systems manufacturers ships and submarines for the Navy.
Lastly, Mission Systems produces programs used in Space, Intelligence and Cyber Systems.
The company’s core performance metrics have improved over the course of 2021.
Source: Investor Presentation
Click here to download our most recent Sure Analysis report on General Dynamics (preview of page 1 of 3 shown below):
Defense Stock #4: L3Harris Technologies (LHX)
- Estimated Annual Returns: 8.2%
L3Harris Technologies (LHX) is the result of a merger between L3 Technologies and Harris Corporation completed on June 29, 2019, forming the sixth largest defense contractor. Shareholders of L3 Technologies received 1.30 shares of Harris Corporation for each of their own shares outstanding.
The company now reports four business segments: Integrated Mission Systems (30% of revenue), Communication Systems (23% of revenue), Space and Airborne Systems (25% of revenue), and Aviation Systems (23% of revenue).
The majority of the L3Harris’ sales are to the US Government or to other defense contractors. The combined companies had revenue of about $18.2B in 2020.
Click here to download our most recent Sure Analysis report on LHX (preview of page 1 of 3 shown below):
Defense Stock #3: Huntington Ingalls Industries Inc. (HII)
- Estimated Annual Returns: 9.4%
Up until 2011, Huntington Ingalls Industries was a division within Northrop Grumman. The company was spun off in March of that year.
Today, the company primarily builds nuclear and non–nuclear ships for the U.S. Navy. The company reports three business segments: Newport News Shipbuilding, Ingalls Shipbuilding, and Technical Solutions. Newport News builds nuclear powered aircraft carriers and submarines.
Ingalls builds surface combatant ships, amphibious assault ships, and Coast Guard cutters. Technical Solutions provides fleet maintenance and modernization, IT support, nuclear management and operations, and unmanned systems.
The company had approximately $9.4B in revenue in 2020.
Click here to download our most recent Sure Analysis report on HII (preview of page 1 of 3 shown below):
Defense Stock #2: Lockheed Martin (LMT)
- Estimated Annual Returns: 10.0%
With 20 years of dividend increases, Lockheed Martin is a blue chip stock.
Lockheed Martin Corporation is the world’s largest defense company. About 60% of the company’s revenues comes from the US Department of Defense, with other US government agencies (10%) and international clients (30%) making up the remainder.
The company consists of four business segments: Aeronautics (~40% sales) – which produces military aircraft like the F–35, F–22, F–16 and C–130; Rotary and Mission Systems (~26% sales) – which houses combat ships, naval electronics, and helicopters; Missiles and Fire Control (~16% sales) – which creates missile defense systems; and Space Systems (~17% sales) – which produces satellites.
The company has significant strength and exposure in military aircraft. The company had total revenue of over $65.4B in 2020.
Click here to download our most recent Sure Analysis report on Lockheed Martin (preview of page 1 of 3 shown below):
Defense Stock #1: Northrop Grumman (NOC)
- Estimated Total Returns: 10.7%
Northrop Grumman was founded as Northrop Aircraft in 1939. The company’s first aircraft was a patrol bomber for the Norwegian Air Force.
Northrop Aircraft’s iconic B-2 stealth bomber took its first flight in 1989. In 1994, Northrop purchased Grumman Corporation, which provided the Lunar Module that landed on the moon in 1969.
Click here to download our most recent Sure Analysis report on Northrop Grumman (preview of page 1 of 3 shown below):
Defense stocks have been among the hottest stocks in the market in the years since the Great Recession ended. This has caused many stocks in this sector to reach valuations well above their historical average.
Of the 7 defense stocks on the list, Lockheed Martin and Northrop Grumman currently meet the requirement for a buy rating, due to their expected returns being above 10%.
While defense stocks could continue to perform well, we encourage investors to wait for a pullback in several of these defense stocks due to valuation concerns.
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