Most defence firms suffered only a slight impact in their earnings amid several other industries hurt by the coronavirus pandemic. This is because a large chunk of defence companies' revenues is tied to one particular client: the government. Consequently, investors diversify into defence companies knowing that revenues are fairly predictable in the long run, so this adds stability to those investors’ portfolios.
This is our guide to the top defence stocks to trade this year.
Where Can I Buy Defence Shares?
Defence shares can be bought via most regulated online brokers, but not all brokers are the same when it comes to commissions (i.e., fees), bid-ask spreads, and other characteristics such as the amount of educational material published on the broker’s website. To make it easier for you to find the right broker, we have shortlisted a few of them.
What Are Defence Stocks?
A common misconception about defence companies is that they are usually just manufacturers of weapons and military equipment for warfare. Many defence companies don’t make tanks or warships at all; they are instead involved with information technology (IT), intelligence gathering, and other functions needed by government agencies.
Prospective investors in defence stocks typically look at a country's defence spending to gauge how companies will fare at least for the year ahead. Defence budgets tell investors how much of the available funding is for things like military health care vs. fighting insurgencies. Defence company revenues are somewhat estimable because of the exact figures allocated for specific purposes.
How to Trade and Invest in Defence Shares?
Open a Trading Account
Most regulated brokers will allow you to buy shareholder stakes in the big defence companies, and you should be able to sign up with such a broker in a matter of minutes, although it could take a little longer if you have to upload some documents to prove your identity.
Choose Defence Shares
Use our list of suggested stocks as a guide, but be sure to do your own research to come up with a shortlist of companies in the defense sector to buy. Each stock has a unique ticker symbol such as LMT (for Lockheed Martin) that allows you to easily find that stock on the broker’s website.
Once you’ve funded your account by bank transfer, credit/debit card, PayPal, or another method, you can click the “buy” button for each stock you wish to buy. You’ll find the buy button on the stock’s trade ticket that requires you to enter the number of shares you wish to buy or the amount of money you wish to invest.
Top 10 Defence Shares to Buy in 2021
Our research has resulted in the following top-ten list of defence shares to buy this year:
- Lockheed Martin
- Raytheon Technologies Corporation
- Northrop Grumman
- L3 Harris Technologies
- BAE Systems
- General Dynamics
- Airbus Group
- Leidos Holdings
1. Lockheed Martin (NYSE: LMT)
Lockheed Martin Corporation is one of the largest defence contractors globally. It specializes in advanced technologies, information security, and aerospace. This Maryland-based firm has consistently been at the top of the list of defence companies by revenue and has broken the $100 billion valuation barrier. In December 2020, Lockheed Martin announced that it would acquire Aerojet Rocketdyne for $4.4 billion in a move that the company deemed would boost sales as the entire defence industry braces for a defence budget tightening.
Lockheed shares have been near all-time highs between July 2019 and June 2021.
2. Boeing (NYSE: BA)
Boeing may be more famous for manufacturing commercial aircraft but almost a third of its revenue comes from its defence division.
Boeing shares almost halved in value in February 2020 as a result of the coronavirus pandemic that affected the commercial airline sector. However, the ungrounding of the troublesome 737 Max aircraft and the gradual opening up of world economies sent Boeing shares on an upward trajectory in the second quarter of 2021. There may still be time to buy into this uptrend from a relatively low base.
3. Raytheon Technologies Corporation
Raytheon Technologies' defence segment, Raytheon Missiles & Defence (RMD), is another giant US defence contractor. The company manufactures precision weapons, control systems, and air defence systems.
One of the key events that improved Raytheon's bottom line in recent years is its push to sell weapons and radar systems to Middle Eastern allies in Yemen. Investors also expected further improvements in 2021 following the completed merger with United Technologies in 2020.
Like Lockheed Martin, Raytheon shares are near all-time highs midway through 2021 but have been somewhat volatile.
4. Northrop Grumman
Northrop Grumman is a large manufacturer of weapons and a provider of military technology. The company is about half of Boeing's market cap size but is one of the top 100 firms in the USA by revenue. Northrop has existing project deals with the US government and is currently scheduled to launch the James Webb Space Telescope in November. Last year, Northrop Grumman also won a $13.3 billion contract to manufacture intercontinental ballistic missiles called Ground Based Strategic Deterrent (GBSD), which are set to be in service by 2027 onwards.
Northrop Grumman shares have risen significantly in the past decade but there may be opportunities to buy on the periodic dips.
5. L3Harris Technologies (NYSE: LHX)
L3Harris Technologies is an information technology company and defence contractor known for producing various defence solutions, including surveillance solutions, microwave weaponry, and electronic warfare. In December 2020, the US Navy awarded L3Harris Technologies a $496 million contract for a new tactical jamming system.
In June 2021, LHX shares were at an all-time high price of $222-per-share.
Expert Tip on Investing in Defence Shares“ Although predictable in many respects, defence spending can be cyclical, waxing and waning according to the politicians in power at any given time. There may therefore be opportunities to buy at the bottom of each cycle if you can identify when this is. ”- Ron Mendoza
Why Invest in Defence Shares?
Defence companies tend to be long-lasting companies that have fairly predictable revenues and will probably continue to pay dividends. Defence stocks can therefore be held in a portfolio to collect those dividends and to provide effective diversification away from other kinds of stocks.
The main (or only) case against investing in defence stocks is the moral case for not investing in companies that produce killing machines.
Frequently Asked Questions
With a market capitalisation of more than $100 million, Lockheed Martin is the biggest defence company in the world.
Defence will always be a good investment in the sense that companies will always need defending and some of the defence companies have been around for a very long time. Defence spending, and hence the fortunes of defence companies, can be cyclical but you can usually rely on defence stocks to pay dividends.
On most metrics — whether market cap, revenues, or profitability — Lockheed Martin usually tops the list.
One of the biggest investors of defence stocks is Vanguard Group. This investment management company holds significant positions in both Lockheed Martin and Boeing.
For someone trying to gain exposure in the defence industry, it would be best to own shares of particularly stable companies like Lockheed Martin, Boeing, Northrop Grumman, or Raytheon Technologies.
Every country needs to protect its citizens and its territory from all kinds of threats, so firms that specialize in developing ways to provide security help achieve this aim.