With defense spending poised to soar in multiple regions of the world, Raytheon (NYSE:RTX) stock is a very good name to buy at this point, particularly for conservative investors.
In addition to Russia’s invasion of Ukraine, intensified worries about Iran and China are likely to spur much higher defense spending by many nations. The company’s focus on drones and hypersonic missiles makes Raytheon an industry stalwart poised to benefit from current trends.
As of April 12, the U.S. had already given Ukraine over $1.7 billion of military aid, and it has reportedly authorized another $750 million of military assistance to the country. Even assuming that most of the aid consisted of equipment that the U.S. had already bought, Washington will probably look to replace the lion’s share of the equipment that it provided to Ukraine. And those orders by the U.S. should help boost Raytheon’s financial results and RTX stock.
In related news, President Joe Biden has proposed a roughly $30 billion increase in U.S. defense spending for next year. In the wake of the war in Ukraine, Germany is more than doubling its defense spending in 2022 and has vowed to spend over 2% of its GDP on defense in subsequent years, up from 1.5% in 2021. Other European countries, including Turkey, are also likely to sharply increase their defense spending.
Many Middle Eastern nations will look to spend more on defense because Iran is poised to prosper economically from a potential new nuclear deal, freeing it to spend much more on its military. And in Asia, worries about possible military action by China are present.
Ukraine’s successful use of drones in its war against Russia is making them quite popular around the world.
Raytheon sells Coyote drones that, according to the company, are “small, expendable and tube-launched.” Moreover, they “can be flown individually or netted together in swarms, and (are) adaptable for a variety of missions including surveillance, electronic warfare and strike.”
Raytheon also sells systems that defend against drones. Given the increased popularity of drones, there is likely to be strong demand for Raytheon’s products that defend against them.
On the hypersonic missile front, the U.S. last September carried out a “successful” trial of Raytheon’s “air-breathing hypersonic” missile. Meanwhile, Raytheon is also developing technologies that are supposed to defend against hypersonic missiles.
Trading at a relatively low forward price-earnings ratio of 22, RTX stock is a buy at this point, given its many positive catalysts. And in light of the strong financial stability of the company’s customers (national governments don’t often go bankrupt), along with its reasonable valuation, Raytheon is a great name for conservative investors.
On the date of publication, Larry Ramer 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.
