When Russia invaded Ukraine in February 2022, the paradigm for investing in defence stocks shifted dramatically. The newly proposed fiscal 2024 Department of Defense budget by US President Joe Biden calls for $842 billion in discretionary DoD spending, a 3.2% increase over 2023 levels. According to Bank of America analyst Ronald Epstein, DoD discretionary spending would exceed $1 trillion by fiscal 2026, offering significant potential for the military industry.
Defence stocks are appealing investments during economic downturns because they frequently have dependable, long-term contracts.
Here are three defence stocks to purchase that have significant upside potential.
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Lockheed Martin Corporation
Lockheed Martin Corporation (NYSE: LMT), headquartered just outside of Washington, D.C., is one of the world’s largest defence enterprises. Its operations are divided into four categories: aeronautics, missiles and fire control, rotary and mission systems, and space. The fighter jet market leader makes the F-35 fighter jet, the most costly plane in the world.
The defence firm has long-term contracts with its largest customer, the US government, which accounts for 74% of its sales. Along with the F-35 fighter plane, LMT has six missile development programs and one classified development program that are expected to enter production between 2023 and 2026.
Some investors may be concerned about Lockheed’s reliance on a single major customer. It operates, however, mostly on a contract basis and now has about $150 billion in backlogged orders. LMT, with its diversified business, could be a solid long-term defence stock.
L3Harris Technologies Inc.
In 2019, L3Harris Technologies Inc. (NYSE: LHX) was founded by the merging of L3 Technologies and Harris Corporation. It is the sixth largest defence contractor in the United States, with four business segments: integrated mission systems, space and airborne systems, communication systems, and aviation systems.
C6ISR systems and goods, wireless equipment, avionics, tactical radios, electronic systems, night vision equipment, and surveillance solutions are all manufactured by the firm, which is headquartered in Florida. Its products are primarily employed by US government defence agencies, but it also has a developing commercial sector.
The expansion of the century-old defence leader stalled in 2021, with revenues falling slightly short of the previous year due to supply chain difficulties and contract delays. Despite this, it was awarded a five-year contract worth approximately $500 million to supply tactical jamming pods to the United States Army. Since its inception in 2019, it has boosted dividend payments year after year, making it a good income stock in the defence sector.
General Dynamics
General Dynamics (NYSE: GD) is a Virginia-based American defence and aerospace business. It is the third-largest defence contractor in the United States and the third-largest defence contractor in the world in terms of sales. One of the major defence shipbuilding corporations, the US Navy gave it a $9.6 billion contract to build the first Columbia-class submarine.
Aerospace, combat systems, information technology, and marine systems are its four business segments. Gulfstream Aerospace, a private jet designer and builder, is part of its aerospace division. Its combat systems section provides the US government with vehicles, weapons systems, and ammunition.
The company’s technology division creates services to support programs for a wide range of military, government, and municipal customers. While GD profits from government contracts, its diverse product offerings mean it is not as dependant on them as other companies on our list, making it a viable option in the defence industry.
