No stock index has been spared from the bearish market conditions in 2022, triggered by inflation, rate hikes and the war in Ukraine. But there are a small group of stocks that have outperformed the rest of the market: defence, security and weapons. We tell you everything about defence stocks.
Among the public companies include Lockheed Martin, Raytheon, Boeing and Northrop Grumman in the United States, and Rheinmetall, Thales, Dassault Aviation and Airbus in Europe. All of them could benefit from the increase in public spending on defence due to the current global geopolitical situation.
A polarised world
When the USSR fell in 1991, the Cold War ended and so did the global nuclear arms race. But the polarisation across the world continued with ongoing nationalism in Russia and China. The rivalry between the world’s leading power, the United States, and China is at the epicentre of this change. The war in Ukraine is another example of this deepening divide between major global powers. Since 2015, public spending on defence has increased sharply around the world.
Russia’s invasion of Ukraine on February 24, 2022 has accelerated the process. The thirty countries that make up NATO have committed to investing 2% of their GDP in defence, if they are not already doing so, including Germany, in a historic decision.
Increase in military spending
The large increase in military spending by countries will likely translate into higher revenues for companies in the defence sector and defense stocks. According to the Stockholm International Peace Research Institute (SIPRI), there are a total of 27 European companies among the 100 largest defence companies in the world. The rest of the companies on that list are American, followed by Chinese and Russian companies, which we have not included in this thematic investment list.
The United States is by far the largest military power in the world. Its defence budget for 2022 is $782 billion, almost three and a half times more than that of the second world power, China, whose budget for the same year is $229 billion. These figures are expected to increase in the coming years, given the current geopolitical context.
Profitability of defence stocks
Over the past ten years, the annual return of the Dow Jones U.S. Select Aerospace & Defense, which measures the performance of US companies in the aerospace and defence sector, has been 13.5%, as of August 31, 2022. And that is despite the reduction in military spending experienced around the world during the pandemic.
In this thematic investment list, we’ll show you which companies give you exposure to the defence sector. It also includes some names from the cybersecurity sector, which also has its own thematic list. At BUX Zero you can invest in at least 40 defence companies:
Among the five largest military aerospace companies in the world are Boeing and Airbus. However, both suffered financially during the pandemic due to their business in commercial aeroplanes, and their stocks have yet to return to pre-pandemic levels.
- Lockheed Martin. This American company is the largest military contractor in the world and manufactures almost everything from planes to ships to missiles. It generated revenues of $15.45 billion in the second quarter of 2022. The company is responsible for the legendary F-35, the most advanced military aircraft in the world. It employs more than one hundred thousand people. On March 7, as the markets crashed, its stock hit an all-time high.
- Boeing. Boeing is the third largest defence company in the world. Together with Airbus, they control 90% of the commercial aircraft sector. In the military sector, the company makes the F-15 and F-18 fighters, as well as the Apache and Chinook helicopters. Boeing reported revenues of $16.68 billion in the second quarter of 2022. It employs 142,000 people.
- Airbus. Airbus is the world’s leading commercial aircraft manufacturer. Its headquarters are in Toulouse, France, although it is fiscally registered in the Netherlands. The company manufactures the Eurofighter jet, used for two decades by the armies of Italy, Germany, Spain and the United Kingdom, which is manufactured together with the Italian Leonardo and the British BAE Systems. It also produces drones and helicopters, such as the Eurocopter Tiger. It reported revenues of €12.810 billion in the second quarter of 2022 and employs around 128,000 people.
- DassaultAviation. The Falcon private jet is perhaps the star product of this French aerospace manufacturer, but it also manufactures state-of-the-art military fighters, notably for the French army. The Mirage and Rafale are the best known, but Dassault Aviation also produces drones. In the second quarter of 2022, it reported revenues of €1,571 billion and employs about 12,000 people.
- MTU Aero Engines. This German company develops, manufactures and provides maintenance to the aeronautical industry. Among its products are jet engines for the Panavia Tornado and the Eurofighter Typhoon, the turboprops for the Airbus A400M and the MTR 390 engine for the Eurocopter Tiger. It generated revenues of €1.289 billion in the second quarter of 2022. The company employs around 11,000 people and is headquartered in Munich.
Ship and submarine builders
The following five companies are giants in the construction of warships and military submarines. However, many on this list have diverse operations and could also appear in the group of weapons manufacturers or fighter aircraft, such as Northrop Grumman or Thales.
- Northrop Grumman Corp. is the fourth largest military defence contractor in the world and the number one builder of military ships. Its best-known product to the general public, however, is the B-2 Spirit fighter, aka the “Stealth Bomber”. It also makes ballistic missiles and rocket boosters for NASA. Northrop Grumman is headquartered in Virginia, United States, and was founded in 1939. In the second quarter of 2022, it posted revenues of $8.8 billion and has 88,000 employees. As of October 2022, its share price is at an all-time high.
- Huntington Ingalls. This American company is the fifteenth-largest defence company in the world. It makes nuclear-powered aircraft carriers and submarines through its subsidiary Newport News, although it also offers intelligence and cybersecurity services. The company was founded back in 1886, and now has 44,000 employees. In the second quarter of 2022, it reported revenues of $2.662 billion.
- L3Harris. This US company is the tenth largest arms contractor in the world, and its range of products is enormous, spanning multiple areas including air, ground, space, and cybersecurity. For the military naval sector, it builds warships and submarines. The company posted revenues of $4.135 billion in the second quarter of 2022 and employs almost 50,000 people. Its shares are at record highs.
- ThyssenKrupp. This German company is known for being one of the largest steel companies in Europe, but it also builds trains, ships and submarines. It is at number 55 on the list of the 100 largest defence companies in the world. The company reported $10.95 billion in revenue for the second quarter of 2022. ThyssenKrupp employs almost 100,000 people. Unlike many pure defence companies, its shares are struggling lately due to the slowdown in the European economy which has dampened the overall demand for steel, and problems in the supply of natural gas, which is still essential for the metals sector.
- Thales. This French company provides technology for land, aerospace and maritime vehicles. It was founded in 1893. Thales also produces weapons such as mortars. Its revenue in the second quarter of 2022 was €4.128 billion and it employs almost 80,000 workers. Its shares are trading very close to their all-time highs.
Land vehicle companies and stocks
By 2022, the global market for military ground vehicles will account for some $18.4 billion annually, according to a recent report by British firm Global Data. In 2032 it will be $27.6 billion, 50% more. Here are a few companies operating in this sector:
- Oshkosh Corporation. This American company designs and manufactures military vehicles. It also has two other lines of business: equipment for vehicles and the manufacture of civil vehicles. Its shares have fallen sharply since May 2021, when it reached an all-time high, and are currently at the levels of July 2020. The reason for this performance is weaker than expected quarterly earnings. Its revenue in the second quarter of 2022 was $2.066 billion. It employs 15,000 people.
- Rheinmetall. Rheinmetall is the most important defence company in Germany and the seventh largest in Europe. It ranks number twenty-seven in the world. A large part of its €1.4 billion quarterly revenue comes from exports. It employs 21,000 people. In addition to vehicles like the Puma, it makes cannons and machine guns. Its shares reached their all-time high in May 2022 – having risen 137% since February 24 – but have since lost around 30% of their value.
- KBR. This American company has more than a hundred years of history. Its headquarters are in Texas and it specialises in weapons and vehicles for land, air and sea. It generated revenue of $1.616 billion in the second quarter of 2022 and employs 28,000 people. Its shares are near their all-time high, which they reached in April 2022.
- Indra Systems. Indra Systems is the only Spanish company on the list of the hundred largest defence companies. The other large Spanish company in the sector is Navantia, which builds ships of all kinds, but belongs to the Spanish State and is not public. Its revenues in the second quarter of 2022 were €966 million and it employs 55,000 people
- Amphenol. Amphenol is an American company that specialises in connectors and electronic accessories for military land, sea and aerospace vehicles. It generated $3.137 billion in revenue during the second quarter of 2022. The company employs 90,000 people and its shares hit all-time highs late last year. They have since lost about 20%.
Weapons and arms manufacturers stocks
These five companies, especially the first, Raytheon, are key in the arms sector. But other defence stocks mentioned previously, such as Northrop Grumman and Lockheed Martin, are also heavyweights in weapons manufacturing.
- Raytheon. Headquartered in Massachusetts, this is the second-largest defence company in the world and the largest manufacturer of guided missiles on the planet. It produces aircraft engines, missiles, air defence systems, drones, and cybersecurity solutions. It had revenue in the second quarter of 2022 of $16.31 billion and employs 174,000 people worldwide. Its shares hit their all-time high in April 2022 and have since lost about 20%.
- Honeywell. Honeywell is the 18th largest defence company in the world. The US firm makes everything from consumer products for the home to missile launchers. Its income in the second quarter of 2022 was €8.953 billion and it employs almost 100,000 workers.
- Aerovironment. Another American defence company, founded in 1971 and based in Arlington, Virginia, that designs and manufactures unmanned aerial vehicles. It also works with NASA on solar aircraft research and development. It is the largest contractor in the United States for small drones, some of them kamikazes. Its revenues are lower than other companies on this list with quarterly revenue of $108 million in Q2 2022. It employs about 1,200 people.
- BWX Technologies. BWX was founded in the United States in 1867 and it develops nuclear components used in submarine propulsion systems and nuclear weapons. Its revenue in the second quarter of 2022 was $554 million. Its shares have risen about 25% from the end of February 2022 to October 2022.
- Aerojet Rocketdyne. This US company makes missiles and rockets. In fact, it is one of the leaders in its sector. Lockheed Martin announced that it would acquire the company at the end of 2020, but in February 2022 the operation was scrapped. In the second quarter of 2022, it had revenues of $528.5 million
Defence stocks to invest for the long term
If you believe that defence stocks will provide long-term value, you can start by investing a little every month using “dollar cost averaging.” This strategy helps smooth out the volatility and averages out your overall cost.
With BUX Zero you can invest automatically by creating a savings plan. You pick the stocks and choose how much to invest each month, we’ll execute the plan for you automatically. You can select full shares or smaller amounts using fractional investing. Investing a small amount every month with a long-term savings plan can be a great way to avoid market volatility, grow your money and avoid today’s high inflation. You can even have more than one plan at a time.
Invest in defence stocks with BUX Zero
AAR, Aerojet Rocketdyne, Aerovironment, Airbus, Amphenol, Axon Enterprise, Boeing Company, Booz Allen Hamilton, BWX Technologies, CACI International, Curtiss-Wright, Dassault Aviation, General Electric, Heico, Honeywell, Howmet Aerospace, Huntington Ingalls, Indra Sistemas, Jacobs Solutions, Jenoptik, KBR, Kratos Defense & Security Solutions, L3Harris, Leidos, Lockheed Martin, Maxar Technologies, Mercury Systems, MTU Aero Engines, Northrop Grumman, Oshkosh Corporation, Raytheon, Rheinmetall, Safran, Sturm Ruger & Company, Teledyne, Textron, Thales, ThyssenKrupp, TransDigm, ViaSat.
All data as of 14/10/2022
All views, opinions, and analyses in this article should not be read as personal investment advice and individual investors should make their own decisions or seek independent advice. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication.