Defense Stocks Soar $69 Billion On Russia's War
MATT KRANTZ
03/03/2022
Russia's attack on the Ukraine sparked a global humanitarian and political crisis. But S&P 500 investors are still finding ways to engage in defense companies helping nations defend themselves in a world torn by war.
Investors have already posted $69 billion in stock gains on the 33 major defense and aerospace stocks in the largest ETF of its kind, the iShares U.S. Aerospace & Defense ETF (ITA), says an Investor's Business Daily analysis of data from S&P Global Market Intelligence and MarketSmith.
The ETF itself is up nearly 10% from Russia's initial Feb. 24 attack on Ukraine. That's more than twice the 4% rise in the S&P 500 in that time. Analysts, too, see more upside in a year's time in more than three-quarters of the stocks in the top defense ETF. And not just a little rise — they're calling for an average double-digit gain.
And yet, the top defense ETF doesn't show the magnitude of gains seen in the defense and aerospace industry in the wake of Russia's attack. The 33 stocks in the ETF, on average, are up nearly 13% from the attack and more than 5.3% this year so far. The S&P 500 itself, measured by the SPDR S&P 500 ETF Trust (SPY), is down nearly 8% this year.
"Russia's invasion of Ukraine, representing Europe's worst security crisis since World War II, has sparked global outrage," said Jack Ablin, strategist at Cresset Capital. "The court of public opinion clearly supports the Ukrainian people and their president, Volodymyr Zelenskyy."
Many of the ETFs and defense stocks have run up. But analysts still see upside for many remaining.
Targeting The S&P 500 Defense ETFs
With assets of more than $3 billion, iShares U.S. Aerospace & Defense is twice the size of its next biggest rival, the SPDR S&P Aerospace & Defense ETF (XAR).
But defense is not a massive area for ETFs. There are now only three major ETFs to choose from for investors looking to buy into the sector. The third is the relatively small Invesco Aerospace & Defensive (PPA), with $780 million in assets. And in what's perhaps the worst timing ever for an ETF, the VictoryShares Protect America ETF shut down late last year. And it's easy to see why: Shares of defense companies largely lagged the S&P 500 over the past five years.
The iShares U.S. Aerospace & Defense ETF, for instance, is up just 46.2% over the past five years. That chokes on the exhaust of the 84.2% gain by the S&P 500 during that time. Part of the underperformance is due to its No. 1 holding, a 23% position in Raytheon Technologies (RTX). Shares of Raytheon are down more than 10% in five years. That's all but tried the patience of defense and aerospace investors.
But S&P 500 analysts are starting to warm up to the sector — just not in the obvious places. They see the 32 stocks in the iShares U.S. Aerospace & Defense ETF, with current price targets, gaining an average of 14.3% over the next 12 months.
Analysts Like These Defense Stocks Best
Investors made no secret of the defense stocks they like best amid this new type of warfare. Eleven of the stocks in the iShares U.S. Aerospace & Defense ETF are up 15% or more from the time war erupted in Ukraine. And of those, analysts still see upside in more than half the stocks.
Take Maxar Technologies (MAXR). The company provides space imagery of the kind useful in monitoring military events in Europe. Shares are up more than 46% from the time war broke out to 35.80 a share. That gain alone added $882 million in market value for investors. But even so, analysts think this stock still has more than 13% upside until hitting its 12-month price target of 40.75. Additionally, the company is seen making 54 cents a share (or more than $41 million in profit) in 2022, snapping many years of losing money.
Looking At The S&P 500 Defense Giants
Analysts, though, are less bullish on the obvious defense giants that already ran up. Northrop Grumman (NOC) already pulled 9% past analysts' 12-month price target on the stock. Shares are up a powerful 18% since the war began, putting $10.9 billion into investors' portfolios. It's a similar story with Lockheed Martin (LMT). Following a 27% run-up just this year, and 16% since the war, shares blasted past analysts' price target by some 7%.
But opportunity still abounds. Nations will need to take serious looks at their defenses. Analysts think Defense Department contractor Kratos Defense & Security Solutions (KTOS) will be worth nearly 21% more than it is now in twelve months. And that's following a nearly 30% jump since the war.
Sources: IBD, S&P Global Market Intelligence based on holdings in iShares U.S. Aerospace & Defense ETF
Investors have already posted $69 billion in stock gains on the 33 major defense and aerospace stocks in the largest ETF of its kind, the iShares U.S. Aerospace & Defense ETF (ITA), says an Investor's Business Daily analysis of data from S&P Global Market Intelligence and MarketSmith.
The ETF itself is up nearly 10% from Russia's initial Feb. 24 attack on Ukraine. That's more than twice the 4% rise in the S&P 500 in that time. Analysts, too, see more upside in a year's time in more than three-quarters of the stocks in the top defense ETF. And not just a little rise — they're calling for an average double-digit gain.
And yet, the top defense ETF doesn't show the magnitude of gains seen in the defense and aerospace industry in the wake of Russia's attack. The 33 stocks in the ETF, on average, are up nearly 13% from the attack and more than 5.3% this year so far. The S&P 500 itself, measured by the SPDR S&P 500 ETF Trust (SPY), is down nearly 8% this year.
"Russia's invasion of Ukraine, representing Europe's worst security crisis since World War II, has sparked global outrage," said Jack Ablin, strategist at Cresset Capital. "The court of public opinion clearly supports the Ukrainian people and their president, Volodymyr Zelenskyy."
Many of the ETFs and defense stocks have run up. But analysts still see upside for many remaining.
Targeting The S&P 500 Defense ETFs
With assets of more than $3 billion, iShares U.S. Aerospace & Defense is twice the size of its next biggest rival, the SPDR S&P Aerospace & Defense ETF (XAR).
But defense is not a massive area for ETFs. There are now only three major ETFs to choose from for investors looking to buy into the sector. The third is the relatively small Invesco Aerospace & Defensive (PPA), with $780 million in assets. And in what's perhaps the worst timing ever for an ETF, the VictoryShares Protect America ETF shut down late last year. And it's easy to see why: Shares of defense companies largely lagged the S&P 500 over the past five years.
The iShares U.S. Aerospace & Defense ETF, for instance, is up just 46.2% over the past five years. That chokes on the exhaust of the 84.2% gain by the S&P 500 during that time. Part of the underperformance is due to its No. 1 holding, a 23% position in Raytheon Technologies (RTX). Shares of Raytheon are down more than 10% in five years. That's all but tried the patience of defense and aerospace investors.
But S&P 500 analysts are starting to warm up to the sector — just not in the obvious places. They see the 32 stocks in the iShares U.S. Aerospace & Defense ETF, with current price targets, gaining an average of 14.3% over the next 12 months.
Analysts Like These Defense Stocks Best
Investors made no secret of the defense stocks they like best amid this new type of warfare. Eleven of the stocks in the iShares U.S. Aerospace & Defense ETF are up 15% or more from the time war erupted in Ukraine. And of those, analysts still see upside in more than half the stocks.
Take Maxar Technologies (MAXR). The company provides space imagery of the kind useful in monitoring military events in Europe. Shares are up more than 46% from the time war broke out to 35.80 a share. That gain alone added $882 million in market value for investors. But even so, analysts think this stock still has more than 13% upside until hitting its 12-month price target of 40.75. Additionally, the company is seen making 54 cents a share (or more than $41 million in profit) in 2022, snapping many years of losing money.
Looking At The S&P 500 Defense Giants
Analysts, though, are less bullish on the obvious defense giants that already ran up. Northrop Grumman (NOC) already pulled 9% past analysts' 12-month price target on the stock. Shares are up a powerful 18% since the war began, putting $10.9 billion into investors' portfolios. It's a similar story with Lockheed Martin (LMT). Following a 27% run-up just this year, and 16% since the war, shares blasted past analysts' price target by some 7%.
But opportunity still abounds. Nations will need to take serious looks at their defenses. Analysts think Defense Department contractor Kratos Defense & Security Solutions (KTOS) will be worth nearly 21% more than it is now in twelve months. And that's following a nearly 30% jump since the war.
Sources: IBD, S&P Global Market Intelligence based on holdings in iShares U.S. Aerospace & Defense ETF
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