Aerospace and defense stocks have been among the handful of investments that have performed well in a very difficult market in 2022.
Global geopolitical tensions have been heightened since Russia invaded Ukraine, and Credit Suisse analyst Scott Deuschle said Wednesday there are still plenty of investment opportunities among defense stocks.
The Thesis: Deuschle initiated coverage of the U.S. defense industry with a positive view and said the defense sector will likely generate sales growth exceeding U.S. GDP growth over the next decade.
He projects U.S. Department of Defense investment accounts will grow 7.9% annually over the next eight years.
"For Defense, the Russia/Ukraine conflict and U.S./China tensions are driving DoD budgets higher, supporting a favorable growth outlook for the sector," Deuschle said.
Deuschle said he has a more mixed view of commercial aerospace stocks. He is negative on new aircraft orders and anticipates aftermarket growth will decelerate significantly in 2023.
Deuschle also has a negative view of space stocks, particularly launch companies. He said the space industry is capital-intensive with challenged unit economics and elevated risk.
How To Play It: Deuschle named the following seven stocks as his top Outperform-rated stocks to buy:
- Northrop Grumman Corporation NOC
- Loews Corporation L
- BWX Technologies Inc BWXT
- TransDigm Group Incorporated TDG
- Heico Corp HEI
- Mynaric ADS MYNA
- Blacksky Technology Inc BKSY
In addition, he initiated coverage of the following four stocks with a Neutral rating:
- Raytheon Technologies Corp RTX
- General Dynamics Corporation GD
- Huntington Ingalls Industries Inc HII
- Spire Global Inc SPIR
Finally, Deuschle initiated coverage of the following stocks with Underperform ratings:
- Boeing Co BA
- Lockheed Martin Corporation LMT
- Rocket Lab USA Inc RKLB
- Virgin Orbit Holdings Inc VORB
Benzinga's Take: Defense stocks are inherently defensive investments as well due to the long-term visibility and stability of their government contracts. Even if global defense spending wasn't set to ramp up in coming years, many of these defense plays might be attractive investments in today's uncertain economic climate.
Photo: Advanced anti-radiation missile via Northrop Grumman
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