Though nothing to be celebrated, Russia’s ongoing invasion of Ukraine translates into substantial interest toward defense stocks.
Raytheon Technologies (RTX): An icon of the Ukrainian resistance due to its advanced weapons systems, Raytheon is one of the biggest organic marketing beneficiaries among defense stocks.
Heico (HEI): A defense contractor specializing in manufacturing vital parts and components, Heico serves relevant aeronautical weapons systems.
BWX Technologies (BWXT): Perhaps best known for its naval nuclear propulsion services, BWX Technologies could become cynically important if geopolitical tensions escalate.
AeroVironment (AVAV): The manufacturer of the Switchblade loitering missile system, AeroVironment is shifting the paradigm in Ukraine.
Amid the carnage in the equities sector following the May 9 session, at least one event of the fateful day thankfully didn’t go awry — or at least not to the point which geopolitical observers feared. Across the globe, Russian President Vladimir Putin celebrated the annual Victory Day by providing a speech defending his country’s military actions in Ukraine, an event that initially sparked substantial relevance toward defense stocks.
However, Putin’s speech was surprisingly muted. He did not claim any victories in the “special military operation,” nor did he disclose an escalation of the crisis. Indeed, NPR reported no significant policy shifts, representing a sharp break from the reckless rhetoric that Kremlin officials and supporters disseminated rather freely. Still, investors eyeballing defense stocks to buy now probably shouldn’t be too concerned about a loss of relevance.
Unfortunately, the war in eastern Europe is likely to continue until the Russians simply can’t fight any longer. According to the Atlantic Council, Putin and his closest advisors regard encroaching Western influence on Ukraine as an existential threat. It’s a message that resonates with most Russians, meaning that it’s quite literally do or die for the Kremlin. This puts a cynical narrative atop viable defense stocks.
By chance, several military-related companies happen to command relatively attractive premiums. Therefore, if you don’t mind the controversy, these are some of the most compelling undervalued defense stocks to buy now.
Raytheon Technologies (RTX)
Arguably no other company is as pertinent to the Ukrainian resistance as Raytheon Technologies (NYSE:RTX). One of the most impactful defense stocks to buy now, Raytheon undergirds the U.S. security infrastructure with multiple weapons systems. Regarding the conflict in Ukraine, Raytheon is best known for its Javelin anti-tank missile, developed in partnership with Lockheed Martin (NYSE:LMT).
Thanks to a robust combination of Ukrainian acumen and effective technologies, Raytheon has basically been given a real-time organic marketing opportunity for the Javelin. Better yet, the company also showcased how its yesteryear technology — such as the Stinger shoulder-fired missile invented in 1967 — can still positively affect the battlefield for allied forces.
If that wasn’t enough, RTX is also among the undervalued defense stocks to buy now. The stock currently sports a Shiller price-to-earnings ratio of less than 15 times. That compares favorably for value-seeking investors since the defense industry features a median Shiller P/E ratio of 30 times.
Even if you’ve been following the conflict in Ukraine, chances are, Heico (NYSE:HEI) wouldn’t come up on your radar as one of the undervalued defense stocks to buy now. An aerospace and electronics firm, Heico focuses on niche markets, thereby not generating many headlines like other high-profile companies in the space. Nevertheless, it plays an important role for military readiness.
Manufacturing and supplying aircraft engine and component parts, Heico supports the weapons systems of several military aircraft, including the F-15 Eagle and F-16 Fighting Falcon. As well, Heico provides components and services for the P-3 Orion and P-8 Poseidon, airplanes that provides significant intelligence and reconnaissance resources. U.S. forces have helped provide Ukraine with critical information.
Admittedly, HEI isn’t the most undervalued play among defense stocks. However, for the price you’re paying, you’re getting tremendous financial strength and robust profitability metrics.
BWX Technologies (BWXT)
Although critical voices in the U.S. political structure suggest that the war in Ukraine has no bearing on U.S. foreign policy, the danger in this thinking is that it dismisses the consequences of the loss of credibility. Essentially, the U.S. has kept its most dangerous enemies at bay with the implied threat of extreme devastation should any nation compromise its security profile.
One company that keeps order by speaking softly and carrying a big stick is BWX Technologies (NYSE:BWXT). Most notable for delivering the complete range of nuclear components and services for the U.S. Navy’s submarines and aircraft carriers, BWX is at the tip of the spear in terms of the U.S. defense infrastructure. Considering that Washington is keeping a wary eye on China amid the Ukraine crisis, BWXT is certainly a name to watch among defense stocks.
Better yet, BWXT is undervalued. The stock features a Shiller P/E ratio of under 21 times, comparing favorably to the 30 times average for the defense industry.
Headquartered in Simi Valley, California, AeroVironment (NASDAQ:AVAV) was a relatively unknown entity prior to the conflict in Ukraine. However, with the outbreak of armed conflict in Eastern Europe, AeroVironment has become one of the more well-discussed companies, thanks in large part to its Switchblade drone.
Billed as an advanced direct fire loitering missile system, the Switchblade can be easily carried by a military operator into the battlefield. With a range of 6.2 miles and a cruising speed of 63 miles per hour, it can hit targets while keeping deploying troops away from close-combat threats. Sure enough, Ukrainians have been using the Switchblade to remarkable effect, representing a gamechanger in their resistance efforts.
Despite the tremendous boost in the company’s overall profile, AeroVironment is modestly undervalued according to Gurufocus’ intrinsic valuation methodology. With the conflict likely to drag on, AVAV may have a longer-than-expected upside pathway.
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Article initially appeared on investorplace.com
Credit: investorplace.com, MSNBC, NYSE
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