The month of August in 2023 has seen a pause in the bullish momentum that dominated much of the summer. As stocks experience a selloff, the historical pattern of increased volatility and decreased trading volume during the dog days of summer has held true.
However, looking ahead to September, investors should consider adding these defense stocks to their watchlists. Despite historical trends, the defense sector remains a compelling area of interest.
Defense Spending Remains Resilient:
Even amid concerns of a potential government shutdown in September, defense stocks are poised to continue thriving. Past instances, such as the threat of a shutdown in September 2021, have shown that defense spending remains relatively unaffected. A substantial $842 Billion is reserved for defense spending in 2024. There is ample opportunity for investors to seek value in the defense stocks sector.
Additionally, the recent market pullback has led to improved valuations for many defense stocks, making them more appealing to value-oriented investors. As September approaches, here are three defense stocks that warrant consideration:
1. Lockheed Martin Corporation: LMT Stock
(LMT:NYE) is a renowned blue-chip defense stock which presents a favourable value proposition despite its higher price tag. Lockheed Martin is a prominent defense contractor spanning land, sea, air, and space domains. It commands a significant 28% share of all U.S. defense contract spending.
The company’s focus in 2023 centres on modern security solutions encompassing artificial intelligence, cybersecurity, and advanced manufacturing. Surprisingly, LMT stock remains relatively undervalued, trading at a forward price-to-earnings (P/E) ratio of approximately 16x.
LMT Stock Forecast: Analyst Insights
Lockhead’s projected earnings growth of around 4% annually supports a price target of USD 496.77 with an upside potential of 9.68%. This represents a 10% increase from the August 21 stock price. The current price of (LMT:NYE) is USD 452.94. The company has a high market CAP of 113.34 Billion.
LMT stock also stands out as an underrated dividend option, boasting a 2.66% dividend yield as of August 21. Although it is overpriced compared to its peers, Lockheed Martin has low volatility and has sustained a streak of 20 consecutive years of dividend increases. The analysts view this defense stock as bullish and rate it “Hold”.
2. RTX Corporation: RTX Stock
Formerly known as Raytheon Technologies Corporation, RTX Corporation (RTX:NYE) is another prominent aerospace and defense company. Headquartered in Virginia, it has been providing services worldwide since 1934.
RTX Corporation has faced an 11% decline in the past 30 days due to product recall concerns. The company was formed from the integration of Collins Aerospace, Pratt & Whitney and Raytheon. Recently, it witnessed this downturn as a result of issues with Pratt & Whitney-manufactured engines leading to Airbus jet recalls.
RTX Stock Forecast: Analyst Insights
Despite the sell-off, RTX stock’s valuation remains elevated at 22x earnings. However, the recent pullback opens an opportunity to acquire RTX stock at a more appealing forward P/E ratio of 17x. While the potential shift away from Pratt & Whitney engines is a concern, CEO Greg Hayes’s confidence in overcoming the challenge underscores the company’s resolve.
(RTX:NYE) has a current price of USD 85.33. The average analyst target price is USD 106.83 with an upside potential of 25.20%. RTX has a market CAP of USD 124.99 Billion. RTX stock is overpriced than its peers but has high market capitalization and positive cash flow. It is low in volatility as well which makes it one of the best defense stocks to invest in. The analysts’ view it as slightly bearish and rate it as “Buy”.
3. General Dynamics Corporation: GD Stock
General Dynamics has been operational since 1899 and is based in Virginia as well. (GD:NYE) has also hopped onto the trend by registering over 4% growth in the last month amidst market volatility. The company’s second-quarter earnings report revealed a remarkable $91.4 Billion backlog of orders. Hence, pointing toward substantial growth potential in the defense stock.
GD Stock Forecast: Analyst Insights
Despite concerns about lower year-over-year earnings, projections anticipate a significant 17% earnings increase for the upcoming year. Trading at 17x earnings, GD stock offers an attractive value proposition. The stock’s 2.26% dividend yield adds further appeal.
The current price of (GD:NYE) is USD 223.39. The average analyst’s target price is USD 231.45 with a downside potential of 3.20%. The company has a market CAP of USD 61.28 Billion which highlights the company’s continued ability to generate substantial sales.
The superior risk adjusted returns shows stability of GD stock. The stock is overpriced but has high market capitalization. The analysts view GD stock as slightly bullish and rate it as “Strong Buy”.
The Takeaway:
Amidst Market Volatility, these defense stocks shine. They emerge as promising stocks for value-seeking investors. Lockheed Martin, RTX Corporation, and General Dynamics present opportunities for investors to explore before market activity rises in September. These defense stocks offer a potential path to value and stability and therefore, deserve closer attention.
