Top Defense Stocks for Q3 2021

The defense industry produces modern weaponry, including combat vehicles, ships, bombers, and fighter jets. Companies in the industry also offer cybersecurity, information technology (IT), analytics, robotics, and intelligence systems. Its primary customer is the U.S. government, but it also sells its products and services to foreign governments and law enforcement agencies. Large defense companies include Lockheed Martin Corp. (LMT), Raytheon Technologies Corp. (RTX), and Northrop Grumman Corp. (NOC).

The Invesco Aerospace & Defense ETF (PPA) holds a broad range of stocks, including some from companies that are not pure-play defense companies such as those involved in civilian aerospace manufacturing. However, it is the closest proxy available for the defense industry. PPA has underperformed the broader market with a total return of 21.7% over the last 12 months compared to the Russell 1000’s total return of 34.8%. These performance figures and all statistics in the tables below are as of June 8, 2021.

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

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.

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• Maxar Technologies Inc.: Maxar Technologies provides satellite communications services. It offers both ground and space infrastructure, including designing and manufacturing satellites and spacecraft components for communications, Earth observation, exploration and on-orbit servicing and assembly.
• Huntington Ingalls Industries Inc.: Huntington Ingalls is a shipbuilding company that designs, builds, and maintains nuclear and non-nuclear ships for the U.S. Navy and Coast Guard. It also provides ship repair and maintenance services.
• Northrop Grumman Corp.: Northrop Grumman is a global security company that provides services and security systems to clients in the aerospace, information systems, and electronics industries, among others. Its products include manned and unmanned aircraft, and electronic warfare systems. The company announced in late April financial results for Q1 of its 2021 fiscal year (FY), the three-month period ended March 31, 2021. Net earnings rose 152.9% on a 6.2% increase in sales. Net earnings were boosted by a one-time gain on the sale of the company’s IT services business.

These are the top defense stocks as ranked by a growth model that scores companies based on a 50/50 weighting of their most recent quarterly YOY percentage revenue growth and their most recent quarterly YOY earnings-per-share (EPS) growth. Both sales and earnings are critical factors in the success of a company. Therefore ranking companies by only one growth metric makes a ranking susceptible to the accounting anomalies of that quarter (such as changes in tax law or restructuring costs) that may make one or the other figure unrepresentative of the business in general. Companies with quarterly EPS or revenue growth of over 2,500% were excluded as outliers.

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• Viasat Inc.: Viasat operates as a global communications company that provides broadband digital satellite communications and wireless networking services. It also offers network control systems, information distribution systems, modems, terminals, and more. Viasat announced in late April that it had completed its transaction of RigNet Inc. (RNET), a provider of ultra-secure, intelligent networking solutions and specialized applications. The acquisition was first announced on Dec. 21, 2020. RigNet was valued at approximately $222 million at that time.
• Northrop Grumman Corp.: See above for company description.
• Raytheon Technologies Corp.: Raytheon Technologies is an aircraft manufacturing company. It offers aero structures, avionics, mechanical systems, mission systems, aircraft engines, power and control systems, radar, and more. The company announced in late April that Thomas A. Kennedy would be retiring as executive chairman of the board of directors, effective June 1, 2021. Chief Executive Officer (CEO) Greg Hayes also was appointed to the board of directors. Because net income changed from negative in the year-ago quarter to positive in the most recent quarter, we cannot calculate an EPS growth figure for the table above.

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

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• Maxar Technologies Inc.: See above for company description.
• Axon Enterprise Inc.: Axon Enterprises develops and manufactures security systems primarily for use in law enforcement. It offers tasers, sensors, on-officer body and in-car cameras, and software that is integrated with the devices.
• 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. AeroVironment announced in May that President and CEO Wahid Nawabi has been elected to succeed Tim Conver as chairman of the board of directors upon Conver’s retirement. The chairman transition is expected to take place at the company’s 2021 annual meeting of shareholders.

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