A recent shift in global politics has resulted in the passage of a $95 billion military aid bill to assist Ukraine, Israel, and Taiwan. This situation, paired with expected growth in worldwide defense expenditure owing to geopolitical stressors, makes it an ideal time to explore defense stocks.
Currently, the White House and Congress are preparing the defense budget for fiscal year 2025, which various estimates suggest might top $900 billion. Therefore, it presents a valuable opportunity to consider some defense stocks that aren’t frequently on the radar of investors but offer considerable benefits.
One such defense stock that may gain from increased spending is Booz Allen Hamilton (NYSE:BAH). This might not be the first choice for investors seeking direct exposure to the sector, however, BAH provides engineering, analytics consulting, and digital solutions for mission operations including cybersecurity, making it a vital service for government customers.
The White House supports a 10% increase in cybersecurity spend for the upcoming fiscal year, providing heightened opportunities for defense stocks working within this sector. In a recent partnering development, Booz Allen teamed up with Cloudflare (NYSE:NET) to offer immediate cybersecurity threat response for organizations facing DDoS and ransomware attacks. Analyst sentiment on BAH continues to consistently remain positive, advising to maintain or increase investment aiming towards a 12-month price target of $156.61 per share.
Another worthwhile investment opportunity in defense stocks comes with Huntington Ingalls (NYSE:HII), acknowledged as the leading U.S. military shipbuilder. HII, as the primary builder of America’s nuclear-powered aircraft carriers, is a staple for investors looking for direct exposure to the defense sector.
Aircraft carriers play a crucial role in projecting power into strategically important regions and supporting allies like Taiwan. In addition to this, HII is also the manufacturer of the upcoming Columbia-class ballistic missile submarines slated to replace the Ohio-class vessels in the next decade. The stock has a modest P/E ratio of 16.1x, lower than the wider S&P 500 index’s current P/E ratio of 27.2x, thus finding favor with those interested in including defense stocks in their portfolio at an affordable valuation. The company delivers a dividend yield of 1.89%, paid out in March, with a record of increasing this for the past twelve years.
Howmet Aerospace (NYSE:HWM) might not immediately spring to mind when considering defense stocks, being a lesser-known aviation material provider. The company produces high-precision components like jet engines and forged aircraft wheels, and it offers metal management consulting services to its defense sector clients.
With a growing demand for commercial aircraft and military aircraft requiring more frequent parts replacements due to increased use, there exists potential benefits for the business. Analyst outlook for the company remains optimistic, in particular, its potential to leverage its main products to improve pricing in the ongoing upcycle – a development following its spin-off from Arconic (NYSE:ARNC). Having maintained an EPS growth of 24% per year over the last five years, the company displays stability through its alignment with the average yearly increase in its share price. Shareholders have seen a total return of 70% in the past year, with a consensus price target of $73 per share, which represents a double-digit increase from current levels.
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