Today’s look at three stocks to buy focuses on the race to develop hypersonic missiles that can travel at ultra-fast speeds of between Mach 5 and 10, or five to 10 times faster than the speed of sound. Currently, America trails rivals Russia and China in the development of hypersonic weapons.
However, Congress and the Defense Department are racing to catch-up in a big way, allocating $3.8 billion in the latest budget from the Pentagon to develop hypersonic cruise missiles for use by all branches of the U.S. military.
The Pentagon successfully tested a booster rocket motor on Oct. 28 designed to power a launch vehicle carrying a hypersonic weapon aloft, Reuters reported. “We are on schedule for the upcoming flight test of the full common hypersonic missile,” said Vice Admiral Johnny Wolfe Jr, Director, Navy’s Strategic Systems Programs, lead designer on the program, according to the report.
A study by consulting firm Deloitte forecasts that annual spending on hypersonic weapons will grow to $5 billion by 2025. And as the U.S. grows its spending in this highly specialized area of defense, only a handful of companies are positioned to benefit.
Here are three defense stocks that should capitalize on the coming hypersonic spending boom by the U.S. government.
Stocks To Buy to Benefit From the Coming Hypersonic Spending Boom: Lockheed Martin (LMT)
The good news for investors is that shares of Lockheed Martin are on sale right now having fallen 10% in the past week after the company announced third quarter financial results that showed its earnings declined 65% year-over-year to $2.21 per share.
The earnings per share disappointment was due to a one-time charge the company took on a $1.7 billion pension settlement. Excluding that pension charge, Lockheed Martin would have earned $7 per share. However, the fact that Lockheed Martin’s Q3 revenues came in at $16 billion when Wall Street was expecting $17.1 billion also send LMT stock sharply lower. The stock now trades at about $332 per share.
Earnings aside, Lockheed Martin, which is the world’s biggest defense contractor with annual sales of $65 billion, is heavily involved in the development of hypersonic weapons. The company recently opened a 65,000 square foot manufacturing facility in Alabama specifically to build hypersonic missiles for the U.S. Navy and Army.
Lockheed Martin has repeatedly said that it is focused on the development and reduction of costs associated with next-generation weapons. Earlier in October, Lockheed Martin helped complete tests on prototypes of hypersonic missiles that will inform their development going forward.
Raytheon Technologies (RTX)
Raytheon Technologies is another defense company that is heavily involved in the creation of hypersonic missiles for the U.S. Defense Department. And unlike rival Lockheed Martin, RTX stock done well in 2021, up 30% year-to-date to more than $89 per share. Over the last month, shares have inched up 2%.
The Waltham, Massachusetts-based company also reported mixed third quarter results, with its sales growing at an annualized 10% to $16.21 billion, but missing the consensus forecast from analysts of $16.36 billion. EPS came in at $1.26 compared to 56 cents in the year-earlier period and beat the consensus call for $1.08.
On the hypersonic front, Raytheon is developing what it calls a “Hypersonic Air-breathing Weapon Concept (HAWC),” for the U.S. Air Force. The company completed the first successful test flight of this scramjet-powered hypersonic missile at the end of September.
The use of a scramjet engine enabled Raytheon’s rocket to easily achieve speeds of Mach 5 during the test, positioning it well for future development and refinement. Scramjet engines compress incoming air before combustion to enable sustained flight at extremely fast hypersonic speeds. Further successful tests could help to keep RTX stock buoyant.
Stocks To Buy to Benefit From the Coming Hypersonic Spending Boom: Boeing (BA)
Chicago-headquartered Boeing is mostly known as the world’s leading manufacturer of commercial aircraft.
However, the company also has a thriving military business known as “Boeing Defense, Space & Security (BDS).” The defense unit, which is responsible for nearly half (45%) of the company’s annual revenue, makes military bombers, as well as attack aircraft – both airplanes and helicopters.
And Boeing is aiming to configure its B-1 Lancer bomber so that it can launch hypersonic missiles when used by the U.S. military. The company just announced plans to begin testing the hypersonic weapons capabilities for its B1 Lancer in September 2022.
Boeing is also developing new electronic warfare systems for the F-15 fighter jets that will enable them to operate hypersonic missiles. BA stock has had a rocky time in 2021, up just 2% on the year following volatile trading. Boeing’s shares continue to recover from the grounding of its 737 Max commercial aircraft following several mass casualty crashes.
At its current price of $207 a share, the company’s stock remains 25% below its 52-week high of $278.57. Positive news from its defense business could help provide an overall lift to the company’s business and its share price.
On the date of publication, Joel Baglole did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Joel Baglole has been a business journalist for 20 years. He spent five years as a staff reporter at The Wall Street Journal, and has also written for The Washington Post and Toronto Star newspapers, as well as financial websites such as The Motley Fool and Investopedia.