Given the sensitive nature of current and ongoing geopolitical flashpoints, the concept of top defense stocks to buy seems controversial. Indeed, the sector has always attracted criticism as it runs almost perfectly counter to contemporary environmental, social and governance (ESG) considerations. Still, while the underlying business of war may be ugly, it’s a necessity.
Listen, we’d all love to live in a world where we can unite and sing Kumbaya. However, that paradigm will never materialize. So long as there have been humans, there have been wars. Thankfully, a world war hasn’t sparked since the end of World War II. But that’s largely because of the proliferation of nuclear weapons. Mutually assured destruction, not human sensibilities, prevented mass-scale bloodshed.
I don’t want to go down a dark road but here’s the main, ironic takeaway. In order to ensure peace, one must have the capacity – and the willingness – to render earthshattering violence. On that note, below are top defense stocks to buy.
AeroVironment (AVAV)
One of the relatively small defense stocks to buy, AeroVironment (NASDAQ:AVAV) is a defense contractor that specializes in unmanned aerial vehicles. It came to mainstream prominence thanks to its Switchblade drone. Used heavily by Ukrainian defense forces, the system allows operators to take cover while searching for targets. Once identified, the drone slams into the enemy object, destroying or incapacitating it.
In many ways, Russia’s invasion of its neighbor catalyzed a paradigm shift in modern warfare. A vast army like Russia’s can be grounded to a halt thanks to the threat of weaponized drones. While the ebb and flow constantly change on the battlefield, you must consider the broader context. Russia really should be steamrolling Ukraine just due to sheer manpower discrepancies.
That Ukraine is holding on is a big victory on a contextual scale. And that’s really thanks to innovations such as those which AeroVironment forwards. While analysts only see a slight gain, AVAV has been flying recently. It may be time for a price target readjustment.
Lockheed Martin (LMT)
Practically synonymous with the military contractor industry, Lockheed Martin (NYSE:LMT) easily ranks as one of the top defense stocks to buy for the long haul. No, I don’t think investors will get rich off of LMT in the same way (and speed) as cryptocurrency speculators. However, the deteriorating stability in the geopolitical realm underlines the cynical bullish nature of LMT.
Fundamentally, investors should pay attention to Lockheed’s Precision Strike Missile (PrSM). Per the company’s website, PrSM is a surface-to-surface missile that offers long-range strike capabilities for the U.S. Army. It succeeds the ATACMS missile, which have recently arrived in Ukraine. As well, Ukrainian forces have used the ATACMS – armed with cluster munitions – to devastating effect.
While speculation, the idea may be that the more PrSMs that Lockheed manufacturers, the more aging ATACMS the U.S. can send to Ukraine. In a macabre sense, it’s a win-win arrangement. While analysts presently rate LMT a hold, investors should consider the long-term implications of the PrSM/ATACMS narrative.
Kratos Defense (KTOS)
Another smaller entity among defense stocks, Kratos Defense (NASDAQ:KTOS) specializes in a range of advanced weapons and security solutions. These include directed energy weapons, along with satellite communications, cybersecurity and warfare, microwave electronics and missile defense, to name but a few. In particular, Kratos should see continued demand for its unmanned systems.
According to its website, Kratos develops the XQ-58A Valkyrie, an experimental, stealthy unmanned combat aerial vehicle (UCAV). Capable of long-range flights at high-subsonic speeds, the Valkyrie could forward a new paradigm in warfare. Essentially, the platform should keep servicemembers away from harm while deploying devastation on enemy targets.
In a battle of attrition or combat against ruthless forces like Hamas, it’s important to not engage in one-for-one swaps. Instead, the U.S. military can force quick capitulation through advanced technologies while simultaneously minimizing losses. The Valkyrie can go a long way in this regard.
Analysts rate KTOS a strong buy, though the price target is modest at $18.33, implying under 7% growth.
General Dynamics (GD)
A top-tier name among defense stocks to buy, General Dynamics (NYSE:GD) also specializes in a wide range of aerospace and military solutions. In particular, the company collaborates with Lockheed Martin to manufacture the F-16 Fighting Falcon. Per Investor’s Business Daily, General Dynamics enjoyed a significant backlog of $95.6 billion in the third quarter.
Most of this backlog centered on marine systems and aerospace. Moreover, the company should cynically benefit from demand for artillery shells. According to General Dynamics’ website, it’s one of the primary producers of artillery shells for the U.S. military. Given the importance of such shells in the conflict in Ukraine, I anticipate GD to steadily march higher.
Yes, the stock is down about 3% since the start of the year. However, in the trailing one-month period, it swung up nearly 9%. Analysts also rate shares a moderate buy with a $267.31 price target, projecting growth of over 11%.
Axon Enterprise (AXON)
While Axon Enterprise (NASDAQ:AXON) arguably generates the most attention in the law enforcement space, it’s also one of the top defense stocks to buy. That’s because not every military mission involves rappelling down buildings, crashing through windows and blasting baddies away with assault rifles. Rather, some operations value capturing high-level targets (alive) for interrogation and intelligence gathering.
Also, in some cases, military forces would rather not escalate lower-level encounters into full-blown firefights if they can be avoided. Plus, anytime servicemembers draw their weapons, there’s a chance for community escalation. To provide nonlethal solutions, Axon offers a range of temporarily incapacitating tools to subdue antagonists or persons of interest. As well, the company offers body-worn cameras and data-sharing software platforms for evidence management.
Not shockingly, AXON has been a top performer thanks to the underlying myriad relevancies. Since the start of the year, shares gained almost 22%. Analysts peg AXON a strong buy with a $236 price target, implying over 15% upside.
CACI International (CACI)
A multinational professional services and information technology (IT) company, CACI International (NYSE:CACI) might not grab the most attention among defense stocks. However, the company offers significant acumen, particularly in the field of cybersecurity and electronic warfare. As the conflict in Ukraine demonstrated, brute force doesn’t always win battles in modern warfare. Instead, a combination of advanced training and technologies can level the playing field for a nominally smaller force.
As well, CACI provides network modeling and simulation services, allowing military strategists to stay ahead of the game. Plus, the leveraging of artificial intelligence and deep learning brings warfare to the 21st century. Just as critically, CACI bolsters backend functionality, such as mission support protocols. Again, modern conflicts will require a combination of brains and brawn.
Since the start of the year, CACI moved up 6%, which is admittedly modest. That also means shares trade at a trailing earnings multiple of 19.88x, favorably lower than nearly 61% of its peers.
Lastly, analysts rate CACI a moderate buy with a $375.18 target, implying nearly 15% upside.
Leidos (LDOS)
Formerly known as Science Applications International Corporation, Leidos (NYSE:LDOS) is one of the more well-rounded ideas among top defense stocks to buy. According to its public profile, Leidos specializes in defense, aviation, IT and biomedical research. Unsurprisingly, Leidos contracts extensively with the Department of Defense, the Department of Homeland Security and the broader intelligence community.
With the U.S. and its allies faced with multiple threat vectors across various mediums, military forces and government agencies can’t rely solely on traditional strengths of power. With more nefarious actors choosing to conduct their crimes in the digital sphere, nations require holistic security. Because of this burgeoning paradigm shift, Leidos’ multivariate business can respond effectively to myriad threats.
To be fair, LDOS is volatile, with shares down 12% on a year-to-date basis. That said, shares now trade at 12.43x forward earnings, favorably lower than almost 75% of its peers. Finally, analysts rate LDOS as a consensus strong buy with a $113 target, implying 23% growth.
On the date of publication, Josh Enomoto 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.
