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2 Ways to Profit From the Fantastic Rally in Defense Stocks

Published 21-05-2024, 05:29 pm
RHMG
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MTXGn
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CHKP
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NVDA
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BAES
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TCFP
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SAF
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NOC
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GD
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NFLX
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AM
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LDOS
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HII
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BAH
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CW
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SPXSAD
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BWXT
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CYBR
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FINMY
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MTUAY
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RNMBY
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0GWL
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THLLY
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CRWD
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PLTR
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DFENG
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ASWC
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  • Defense sector surges amid geopolitical tensions, driven by Russia-Ukraine conflict and Middle East instability.
  • Opportunities exist through specialized funds like VanEck Defense ETF and HANetf Future of Defence UCITS ETF.
  • Key stocks like Northrop Grumman, Rheinmetall, and Dassault Aviation offer dividend yields and growth potential.
  • Want to invest and take advantage of market opportunities? Don't hesitate—try InvestingPro! Subscribe HERE & NOW for INR 476 a month!
  • While the tech sector grabs all the headlines, another sector has been soaring almost vertically: defense.

    That's mainly for three reasons:

    1. Russia's ongoing war with Ukraine fuels uncertainty.
    2. European nations boost defense budgets amid fears of further Russian aggression and potential U.S. policy changes.
    3. Geopolitical tensions in the Middle East add to the bullish sentiment.

    Stocks tied to the sector are riding this wave, as evidenced by the vertical surge in the S&P Aerospace & Defense Select Industry.S&P Defense

    A similar trend can be seen in the STOXX Europe Total Market Aerospace & Defense index.

    Below, we'll explore how you can capitalize on this sector's uptrend using the InvestingPro tool to access crucial information and data.

    1. Through specialized funds and ETFs

    VanEck Defense (ETR:DFENG) provides exposure to the MarketVector Global Defense Industry index, comprising companies worldwide involved in the military or defense sector.

    Launched on March 31, 2023, and domiciled in Ireland, it manages assets totaling $671 million.

    With a total fee of 0.55%, dividends are reinvested within the ETF.

    Since inception, it has yielded 55.63%.

    The ETF's top-weighted countries are the United States (54.68%), France (19.84%), and Italy (6.44%).

    Key holdings include:

    • Leidos Holdings Inc (NYSE:LDOS)
    • Booz Allen Hamilton (NYSE:BAH)
    • Palantir Technologies (NYSE:PLTR)
    • Leonardo SpA ADR (OTC:FINMY)
    • Curtiss-Wright (NYSE:CW)
    • Huntington Ingalls (NYSE:HII)
    • BWX Technologies (NYSE:BWXT)
    • SAAB (LON:0GWL)
    • Thales (OTC:THLLY) (EPA:TCFP)
    • Safran EPA:SAF)

    2. HANetf Future of Defence UCITS ETF (ASWC)

    The HANetf ICAV - Future of Defence UCITS ETF (ETR:ASWC) ETF replicates the EQM NATO+ Future of Defence index, launched on July 3, 2023, and domiciled in Ireland, managing assets totaling $346 million.

    With a total fee of 0.49%, dividends are reinvested within the ETF.

    Since its inception, it has returned 37%.

    Top-weighted countries include the United States (54.27%) and France (11.04%).

    Key holdings are:

    • Rheinmetall
    • Safran
    • CyberArk Software (NASDAQ:CYBR)
    • BAE Systems (LON:BAES)
    • Thales
    • Check Point Software (NASDAQ:CHKP)
    • Palantir Technologies
    • RTX
    • General Dynamics (NYSE:GD)
    • CrowdStrike Holdings (NASDAQ:CRWD)

    Through shares

    1. Northrop Grumman (NOC)

    Northrop Grumman

    Headquartered in Falls Church, Virginia, Northrop Grumman Corporation (NYSE:NOC) is a global leader in aerospace and defense technology, ranking as the fifth-largest weapons manufacturer worldwide.

    Founded in 1939, the company is poised to distribute a dividend of $2.06 on June 12. To be eligible to receive this dividend, shareholders must hold their shares before May 24.

    Northrop Grumman

    Source: InvestingPro

    On July 25 it presents its accounts. For 2024 it expects EPS growth of 6.4% and revenue of nearly 5%.

    Northrop Grumman

    Source: InvestingPro

    Northrop Grumman, in collaboration with NVIDIA (NASDAQ: NASDAQ:NVDA), has announced an agreement granting access to and utilization of NVIDIA's artificial intelligence software. This partnership aims to expedite the development of cutting-edge systems.

    Additionally, the agreement facilitates research and development opportunities, empowering Northrop Grumman to swiftly implement advanced AI technologies, thereby enhancing operational efficiency.

    The market sees potential for it at $501.52.

    Northrop Grumman

    Source: InvestingPro

    2. Rheinmetall

    Rheinmetall

    Rheinmetall (OTC:RNMBY), Germany's largest arms manufacturer and one of Europe's largest, was formerly known as Rheinmetall Berlin before adopting its current name in 1996. Established in 1889, its headquarters are located in Düsseldorf, Germany.

    The company offers a dividend yield of 1.1%.

    Rheinmetall

    Source: InvestingPro

    It reports its quarterly results on August 8. For 2024 it expects EPS to increase by 62.3% and revenue by 39.2%.

    Rheinmetall

    Source: InvestingPro

    In 2024, Rheinmetall anticipates surpassing €10 billion in sales for the first time and projects an operating profit margin of 14-15%, compared to 12.8% in 2023. The company's market value has soared from €4 billion to €18.4 billion over the past two years, driven by its rising share price.

    Moreover, Rheinmetall has secured nearly $800 million from the U.S. for the development of a prototype for Bradley's successor, with the potential for the order to exceed $45 billion.

    The market sees potential for Rheinmetall at €575.

    Rheinmetall

    Source: InvestingPro

    3. MTU Aero Engines (MTX)

    MTU Aero Engines

    MTU Aero Engines (OTC:MTUAY), the German company, formerly known as MTU Aero Engines Holding and now operating as MTU Aero Engines, specializes in the development, manufacturing, and maintenance of aircraft for both civil and military purposes. Established in 1913, it is headquartered in Munich, Germany.

    MTU Aero Engines offers a dividend yield of 0.87%.

    MTU Aero Engines

    Source: InvestingPro

    On August 1, it presents its income statements. Looking ahead to 2024, EPS is expected to increase by 6.5% and revenue by 38%.

    MTU Aero Engines

    Source: InvestingPro

    Market consensus gives it a potential at €245.24.

    MTU Aero Engines

    Source: InvestingPro

    4. Dassault Aviation (AM)

    Dassault Aviation

    Dassault Aviation (EPA:AM) is a French manufacturer of military and civilian aircraft, with its roots tracing back to 1916. Headquartered in Paris, France, it operates as a subsidiary of Groupe Industriel Marcel Dassault.

    On May 22, the company is set to distribute a dividend of €3.37 per share. To be eligible to receive this dividend, shareholders must hold their shares before May 20.

    Dassault Aviation

    Source: InvestingPro

    On May 29 we will know its numbers. The forecast for 2024 is for an increase in EPS of 10.4% and revenue of 26%.

    Dassault Aviation

    Source: InvestingPro

    The company has received a total of 14 ratings, comprising 6 buy ratings and 8 hold ratings, with none being sell ratings.

    Based on fundamentals, its fair value price is assessed at €247.08.

    Dassault Aviation

    Source: InvestingPro

    ***

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    Disclaimer: This article is written for informational purposes only; it does not constitute a solicitation, offer, advice, or recommendation to invest as such it is not intended to incentivize the purchase of assets in any way. I would like to remind you that any type of asset, is evaluated from multiple points of view and is highly risky and therefore, any investment decision and the associated risk remains with the investor.

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