In this article, we look at the 11 best small-cap defense stocks to invest in. To skip the detailed analysis of the defense sector, go directly to 5 small-cap defensive stocks that are best for investment.
US defense spending after 2024
With the world at war in several regions, particularly the Middle East and Ukraine, the global defense industry is poised to have much to offer investors, given its heavy reliance on aerospace and defense companies. There is. As a result, some of the best defense stocks in existence today are starting to look more attractive to investors interested in this space. Current geopolitics has led countries around the world to set aside more and more funding for their respective defense sectors. The United States is not left behind in this regard either, as it continues to adjust defense funding and spending to meet the needs of the current political climate. Another interesting development in the defense sector is the rise of artificial intelligence on the battlefield and what that means for defense companies and countries involved in conflict.
On March 7, Raytheon Technologies Corporation (NYSE: RTX) CEO and Chairman Greg Hayes appeared on CNBC's “Squawk Box” to discuss U.S. defense funding and spending and President Biden's defense budget. We discussed a proposal to increase it by just 1% in 2019. Note that this number is well below the expected increase in U.S. defense spending, so it may garner some grumbling. Here are some of Hayes' comments on this:
“The problem with the 1% increase is that when you have 4% inflation, you're talking about a 3% decrease in defense spending. That's about 3% of our spending.'' GDP is at a relatively historic low given the geopolitical challenges we face. So, assuming that, when the president's budget proposal reaches its peak, it's going to be met with some degree of skepticism, but I think again, the good news is there's a process there. The National Defense Authorization Act (NDAA) typically looks at each individual program, each capability, each requirement, and comes up with a very sound baseline for the budget. . ”
Regarding the issue of current US spending, a topic of debate among the defense business and investment community as well as the general US public, is the need for defense funding around the world to support the war effort in conflict situations. The theme is to send money. One such conflict is the conflict between Russia and Ukraine. Mr. Hayes commented on US defense spending in the Russia-Ukraine conflict as follows:
“The reality is that most of that money will be used to support the American defense industry and replenish stockpiles depleted by the transfer of supplies and weapons to Ukraine over the past two years. I think they are sending it.''
The thing to remember, Hayes said, is that this money is being used to support and defend democracy around the world, especially since the United States can afford to pay for it. A cause strong enough to justify the funds being spent.
AI enters the battlefield
Prior to discussing defense spending, Mr. Hayes discussed the impact of artificial intelligence on defense. Here's what he had to say about the future of AI in the defense sector.
“AI is the future of defense, and when you think about how you connect the battlespace, one of the challenges today is whether your systems are all disconnected, whether you’re on a ship or aboard a ship. So if you're on a submarine or on a plane, how do you get all these systems to talk to each other? That's where AI comes into the battlefield and tells warfighter commanders how they can communicate with each other. Provides real-time information, no need to wait weeks or days. We're just beginning to see what AI can do, but when we think about defense, AI is an outstanding technology, or even a game. I think it’s going to be a changer. It’s the policy for the next 10 years.”
Considering these comments, some of the best defense stocks on the market today include Northrop Grumman Corporation (NYSE:NOC), Lockheed Martin Corporation (NYSE:LMT), and Boeing Co. (NYSE:BA). is likely to decline. We are moving towards incorporating AI into our operations. At the same time, Hayes' comments highlight the fact that the defense sector is currently experiencing high activity and represents a good investment opportunity. That's why we've compiled a list of the best small-cap defense stocks to invest in right now. These include cheap defense stocks that you can buy alongside the most undervalued defense stocks.
Photo by Joel Rivera-Camacho on Unsplash
our methodology
We used Insider Monkey's fourth quarter hedge fund data to select the stocks for our list of the best defense stocks to invest in. As of March 13, all of these stocks had market capitalizations of less than $2 billion. These stocks are ranked from lowest to highest based on the number of hedge funds that own the stock. The top 10 consensus stocks selected by hedge funds have outperformed the S&P 500 index by more than 140 percentage points over the past 10 years (Please see here for the detail). That's why we pay close attention to this often ignored metric.
Best small-cap defensive stocks to invest in
11. Sturm, Ruger & Company (NYSE:RGR)
Number of hedge fund holders: 10 people
Market capitalization: $799.1 million
Sturm, Ruger & Company (NYSE:RGR) is a consumer discretionary firm based in Southport, Connecticut. The company designs, manufactures, and sells firearms in the United States.
10 hedge funds were long in Sturm, Ruger & Company (NYSE:RGR) during the 4th quarter, with total value of shares valued at $50.9 million.
Similar to Northrop Grumman Corporation (NYSE:NOC), Lockheed Martin Corporation (NYSE:LMT), and Boeing Co. (NYSE:BA), Sturm, Ruger & Company (NYSE:RGR) is a great investment. This is one of the defense stocks.
10. Ducommun Incorporated (NYSE:DCO)
Number of hedge fund holders: 11 people
Market capitalization: $733.7 million
GAMCO Investors was the largest shareholder in Ducommun Incorporated (NYSE:DCO) with an ownership stake of 381,866 shares at the end of the 4th quarter.
Ducommun Incorporated (NYSE:DCO) is an aerospace and defense company based in Santa Ana, California, and is one of the best defense stocks to buy today. It provides engineering and manufacturing services for products and applications used primarily in the U.S. aerospace, defense, industrial, and medical industries.
On February 16, RBC Capital analysts rated Ducommun Incorporated (NYSE:DCO) an Outperform investment and kept the price target unchanged at $60.
A total of 11 hedge funds held shares in DuCommune Incorporated (NYSE:DCO) during the 4th quarter, with a total value of $85.1 million.
Diamond Hill Capital mentioned Ducommun Incorporated (NYSE:DCO) in its Q3 2023 investor letter.
“Dukomune Co., Ltd.” (NYSE:DCO) is a significant Tier 1 and Tier 2 supplier of advanced materials aerostructures and electrical components to the defense and commercial markets. The company is expanding its high-margin engineering and aftermarket businesses through targeted acquisitions. At the same time, management is working to improve its core earnings by realigning its operational and physical footprint. We are particularly attracted to Ducommun's electronic systems business, which designs, manufactures, manufactures and integrates a wide range of high-performance components and systems for commercial and military aircraft, missile systems, ships and radars. Although we believe the market views Ducommun as a commercial aerospace stock, we believe that management's focus on the defense side of the company's business is paying off, and we anticipate a productive M&A strategy going forward. I believe that it can be utilized. ”
9. Intuitive Machines Inc. (NASDAQ:LUNR)
Number of hedge fund holders: 12 people
Market capitalization: $547.5 million
Cantor Fitzgerald analysts reiterated their Overweight rating and $13 price target on Intuitive Machines, Inc. (NASDAQ:LUNR) on February 29th.
Intuitive Machines Inc. (NASDAQ:LUNR) is another aerospace and defense company on our list of best defense stocks. We are based in Houston, Texas. The company designs, manufactures and operates space products and services in the United States.
Twelve hedge funds had a long position in Intuitive Machines, Inc. (NASDAQ:LUNR) at the end of the fourth quarter, with a total value of $1.9 million.
8. Terran Orbital Corporation (NYSE:LLAP)
Number of hedge fund holders: 13 people
Market capitalization: $243.1 million
Terran Orbital Corporation (NYSE:LLAP) was in 13 hedge funds' portfolios during the 4th quarter with total value of shares of $27.2 million.
Boca Raton, Florida-based Terran Orbital Corporation (NYSE:LLAP) is an aerospace and defense company that manufactures and sells satellites. It offers end-to-end satellite solutions, among other things, and is one of the best defense stocks to buy.
HC Wainwright & Company gave Terran Orbital Corporation (NYSE:LLAP) a “buy” rating and reiterated the price target of $3.00 on March 4th.
7. Park Aerospace Corporation (NYSE:PKE)
Number of hedge fund holders: 13 people
Market capitalization: $304.5 million
GAMCO Investors was the largest shareholder in Park Aerospace Corp. (NYSE:PKE) with an ownership value of 658,900 shares at the end of the 4th quarter.
Park Aerospace Corporation (NYSE:PKE) is an aerospace and defense company that is one of the best defense stocks to buy. The company develops and manufactures solutions and hot melt advanced composite materials used to manufacture composite structures for the global aerospace market.
Our Q4 hedge fund data shows that 13 hedge funds are long Park Aerospace Corporation (NYSE:PKE), with a total value of $38.3 million.
6. V2X Inc. (NYSE:VVX)
Number of hedge fund holders: 14 people
Market capitalization: $1.3 billion
V2X Inc. (NYSE:VVX) is a company that provides critical mission solutions and support services to defense clients around the world. It is based in McLean, Virginia.
Ancora Advisors was the largest shareholder in V2X Inc. (NYSE:VVX) with an ownership stake of 238,493 shares at the end of the fourth quarter.
V2X Inc. (NYSE:VVX) was found among 13F holdings by 14 hedge funds during the fourth quarter, with total value of the stock valued at $44.7 million.
JMP Securities analysts maintained a Market Outperform rating and $65 price target on V2X Inc. (NYSE:VVX) on March 6th.
Like Northrop Grumman Corporation (NYSE:NOC), Lockheed Martin Corporation (NYSE:LMT), and Boeing Co. (NYSE:BA), V2X Inc. (NYSE:VVX) is the best defense to invest in this year. One of the stocks.
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Disclosure: none. 11 small-cap defensive stocks that are best for investment Originally published by Insider Monkey.
