In this article, we’ll take a look at the 10 most undervalued defense stocks to buy according to hedge funds. To see other companies of this type, go directly to 5 Most Undervalued Defense Stocks To Buy According To Hedge Funds.
Russia’s invasion of Ukraine and President Biden’s pledge to continue aiding Ukraine against Russian aggression have given a strange boost to the defense sector, where spending appears to continue to rise despite fears of inflation for the rest of the industries.
According to Bloomberg, Mary Ann Bartels, chief investment strategist at Sanctuary Wealth, who has a positive view of the market based on her view that the broader market will begin to gain momentum in the second half of 2023, believes that any “pullbacks in the coming weeks and months will be an opportunity to buy. The analyst specifically favors aerospace and defense stocks.
“Immune to economic shocks”
Rising geopolitical tensions have rendered the defense sector virtually immune to broader market turmoil in 2022. A Bloomberg report in May 2022 quoted Richard Aboulafia, chief executive of consultancy AeroDynamic Advisory, who said said the following about the outperformance of the defense sector relative to the market:
“You are insulated from economic shocks because the market for defense goods has no relation to commercial demand for anything in the civilian economy.”
Some of the most notable US defense stocks gaining in this environment are Lockheed Martin Corp (NYSE:LMT), Northrop Grumman Corp (NYSE:NOC) and Howmet Aerospace Inc (NYSE:HWM).
Defense companies in Europe are also seeing rising profits as the continent’s major powers come to terms with the reality of the Russian threat and decide to prepare for the future in terms of military readiness. BAE Systems PLC, Saab and Kongsberg Gruppen ASA recently released their figures for 2022 which show the positive effects of increased military spending in Europe. A WSJ report published in February cited McKinsey estimates that suggest military spending in Europe will rise 53% to $481 billion in 2026 from 2021.
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Our Methodology
For this article, we first used the Finviz stock filter to identify stocks in the aerospace and defense category that have PE ratios below 35, which is well below the industry PE average. 53 to 27 February. From the long list of stocks in the resulting dataset, we selected 10 pure-play defense stocks with the highest number of hedge fund investors. To gauge hedge fund sentiment, we used Insider Monkey’s proprietary database of 943 hedge funds and their holdings as of the end of the last quarter of 2022.
The most undervalued defense stocks to buy according to hedge funds
10. Moog Inc. (NYSE:MOG-A)
Number of hedge fund holders: 19
New York-based Moog Inc. (NYSE:MOG-A) is one of the world’s most notable defense companies. Moog Inc. (NYSE:MOG-A) manufactures defense systems related to counter unmanned aerial systems (C-UAS), rapid munitions handling, missile steering, turret weapons and silent underwater actuation.
At the end of the last quarter of 2022, 19 hedge funds reported holding stakes in Moog Inc. (NYSE: MOG-A). The total value of these interests was approximately $124 million. Moog Inc.’s (NYSE:MOG-A) largest shareholder was Richard S. Pzena’s Pzena Investment Management, which held a $29 million stake in the company.
In February, Moog Inc. (NYSE: MOG-A) increased its quarterly dividend by approximately 3.8%.
9.AAR Corp. (NYSE:AIR)
Number of hedge fund holders: 20
In the defense sector, Illinois-based airline AAR Corp. (NYSE:AIR) works with the U.S. government, providing aircraft maintenance programs, contractor logistics support (CLS), performance-based logistics (PBL), and third-party logistics. (3PL). In addition to Lockheed Martin Corp (NYSE:LMT), Northrop Grumman Corp (NYSE:NOC) and Howmet Aerospace Inc (NYSE:HWM), AAR Corp. (NYSE:AIR) is one of the notable defensive stocks to watch in the current. Market environment.
It is one of the most undervalued defense stocks to buy according to hedge funds. A total of 20 hedge funds tracked by Insider Monkey said they hold stakes in AAR Corp. (NYSE:AIR) at the end of the fourth quarter of 2022.
Carillon Tower Advisers made the following comment about AAR Corp. (NYSE: AIR) in its letter to investors for the third quarter of 2022:
“AAR Corp. (NYSE: AIR) provides aftermarket products and services to the global aviation and aerospace industries. Sales to commercial customers continued to improve in the prior quarter but fell short of expectations, while sales to government customers declined as key programs were winding down.
8. Curtiss-Wright Corporation (NYSE:C.W.)
Number of hedge fund holders: 22
Curtiss-Wright Corporation (NYSE: CW) is an aerospace company that manufactures civil and defense applications and products. Curtiss-Wright Corporation’s (NYSE: CW) defense offerings span air, land, maritime, space, cyberspace and industrial applications. Curtiss-Wright Corporation (NYSE:CW) ranks 8th in our list of the most undervalued defense stocks to buy according to hedge funds.
During the fourth quarter of 2022, Curtiss-Wright Corporation (NYSE:CW) adjusted EPS was $2.92, beating estimates by $0.01. Revenue for the period increased approximately 15.7% year on year to $758 million, beating estimates of $5.77 million. For 2023, Curtiss-Wright Corporation (NYSE:CW) sees sales of $2.66 billion to $2.71 billion, versus a consensus estimate of $2.70 billion. Adjusted EPS for the full year is expected to be between $8.65 and $8.90.
At the end of the fourth quarter of 2022, 22 hedge funds of the 943 funds tracked by Insider Monkey reported holding stakes in Curtiss-Wright Corporation (NYSE: CW). According to the Insider Monkey database, the largest hedge fund shareholder in Curtiss-Wright Corporation (NYSE:CW) is Robert Joseph Caruso’s Select Equity Group, which has a $99.2 million stake in the company. .
7. BWX Technologies, Inc. (NYSE:BWXT)
Number of hedge fund holders: 33
BWX Technologies, Inc. (NYSE: BWXT) supplies nuclear components to the US government. BWX Technologies, Inc. (NYSE: BWXT) operates several business units. One of its units manufactures naval nuclear reactors for the Naval Nuclear Propulsion Program. This defense action is in the spotlight these days, with the company recently increasing its dividend by 4.5%.
BWX Technologies, Inc. (NYSE: BWXT) adjusted EPS in the fourth quarter was $0.93, in line with estimates. For fiscal 2023, BWX Technologies, Inc. (NYSE: BWXT) revenue is expected to be $2.4 billion. EPS for the period is expected to be between $2.80 and $3.00 against the consensus of $2.87.
At the end of the fourth quarter of 2022, 33 hedge funds held interests in BWX Technologies, Inc. (NYSE: BWXT), compared to 28 hedge funds in the prior quarter. Hedge funds like Lockheed Martin Corp (NYSE: LMT), Northrop Grumman Corp (NYSE: NOC) and Howmet Aerospace Inc (NYSE: HWM).
Here’s what Upslope Capital specifically said about BWX Technologies, Inc. (NYSE: BWXT) in its Q3 2022 Letter to Investors:
“BWX Technologies, Inc. (NYSE: BWXT) is a leading producer of nuclear reactors, components and fuel, primarily for powering and propelling US Navy submarines and carriers. I sold our position and replaced it with CACI (detailed below). While I remained intrigued by BWX’s story – unique product set, options outside of defense and the prospect of accelerating free cash flow – I became concerned about the high turnover of management (Chairman, CFO , general manager and two division heads last year). Given the above normal confidence required in leadership for the thesis (believing that investments will normalize and soon increase free cash flow and obscure, long-term investments outside of defense), I decided to move on.
6. Huntington Ingalls Industries, Inc. (NYSE:HII)
Number of hedge fund holders: 34
Naval shipbuilder Huntington Ingalls Industries, Inc. (NYSE:HII) ranks 6th on our list of the most undervalued defense stocks to buy according to hedge funds. As of February 28, Huntington Ingalls Industries, Inc. (NYSE:HII) had a PE ratio of 15.11. It has gained about 6% over the past 12 months. Hedge fund sentiment for Huntington Ingalls Industries, Inc. (NYSE:HII) is also strong. The Insider Monkey database shows that 34 hedge funds held stakes in Huntington Ingalls Industries, Inc. (NYSE:HII) at the end of the fourth quarter of 2022, compared to 24 hedge funds in the previous quarter. Dmitry Balyasny’s Balyasny Asset Management, Cliff Asness’ AQR Capital Management and Rajiv Jain’s GQG Partners are among the top hedge fund players of Huntington Ingalls Industries, Inc. (NYSE: HII) at the end of 2022.
Huntington Ingalls Industries, Inc. (NYSE: HII) is also a dividend payer. Recently, it declared a quarterly dividend of $1.24 per share, the same as the previous dividend. The forward yield was 2.29%. The dividend was payable on March 10 to shareholders of record on February 24.
In February, Huntington Ingalls Industries, Inc. (NYSE: HII) released its fourth quarter results. While GAAP EPS of $3.07 missed estimates by $0.23, Huntington Ingalls Industries, Inc. (NYSE:HII) revenue posted 4.5% year-over-year growth.
For 2023, Huntington Ingalls Industries, Inc. (NYSE:HII) forecasts its shipbuilding revenue to be between $8.4 billion and $8.6 billion.
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Disclosure: none. 10 most undervalued defense stocks to buy according to hedge funds is originally published on Insider Monkey.
