Top Defense Stocks for Q2 2021

The defense industry produces modern weaponry, including combat vehicles, ships, bombers, and fighter jets. The industry's companies also offer cybersecurity, information technology (IT), analytics, robotics, and intelligence systems. Its primary customer is the U.S. government, but it also sells its products and services to foreign governments and law enforcement agencies. Large defense companies include Lockheed Martin Corp. (LMT), Raytheon Technologies Corp. (RTX), and Northrop Grumman Corp. (NOC).

The Invesco Aerospace & Defense ETF (PPA) holds a broad range of stocks in the industry and serves as a proxy for its performance in the market. Its total return was 21.4% over the last 12 months, less than half of the broader Russell 1000's 46.9% total return over the same time. These performance figures and all statistics in the tables below are as of March 9.

Here are the top 3 defense stocks with the best value, the fastest earnings growth, and the most momentum.

Best Value Defense Stocks

These are the defense stocks with the lowest 12-month trailing price-to-earnings (P/E) ratio. Because profits can be returned to shareholders in the form of dividends and buybacks, a low P/E ratio shows you’re paying less for each dollar of profit generated.

Source: YCharts

• Maxar Technologies Inc.: Maxar Technologies, a space technology company, provides high-resolution from its satellites. It also offers infrastructure, robotics, and information solutions to governmental agencies and satellite operators. It reported a Q4 2020 loss from continuing operations of $52 million, reversing income of $53 million in the year-ago period. However, Q4 2019's figure includes a $136 million gain from the sale of an asset. Revenue in Q4 was $467 million, up 13.9% year-over-year (YOY).
• Huntington Ingalls Industries Inc.: Huntington Ingalls, which has been in existence for over a century, primarily designs, builds, and maintains nuclear and non-nuclear ships for the U.S. government. It also provides various professional solutions, such as fleet support, to the governmental and energy markets. Huntington Ingalls' Q4 2020 net income rose 67.1% YOY to $249 million on a 14.3% increase in revenue.
• BAE Systems PLC.: BAE Systems is a U.K.-headquartered global provider of defense, aerospace, and security solutions. It sells these in markets such as the U.S, U.K., Saudi Arabia, and Australia.

Fastest Growing Defense Stocks

These are the defense stocks with the highest YOY earnings per share (EPS) growth for the most recent quarter. Rising earnings show that a company’s business is growing and is generating more money that it can reinvest or return to shareholders.

Source: YCharts

• Huntington Ingalls Industries Inc.: See above for company description.
• Parsons Corp.: Parsons provides advanced technology solutions to the defense, intelligence, and critical infrastructure markets. Its Q4 2020 net income attributable to Parsons was $21.6 million versus $13.7 million last year. Last year's figure was boosted by a $2.8 million income tax benefit compared to a $9.5 million expense in the latest quarter. Revenue fell 7% mainly due to the impact of the COVID-19 pandemic.
• Aerojet Rocketdyne Holdings Inc.: Aerojet Rocketdyne is an engineering and manufacturing company that develops and produces power and propulsion systems, and armament systems. Its main customers are the Department of Defense, NASA, and major defense companies. One of its major customers, Lockheed Martin, announced on December 20 that it plans to buy Aerojet Rocket for a total transaction value of $4.4 billion, equal to $51 a share. However, Raytheon Technologies in February said the deal is anticompetitive and will challenge the combination. Raytheon plans to details its concerns with the U.S. Justice Department and U.S. Department of Defense, which are reviewing the transaction.

Defense Stocks with the Most Momentum

These are the defense stocks that had the highest total return over the last 12 months.

Source: YCharts

• Maxar Technologies Inc.: See above for company description.
• Axon Enterprise Inc.: Axon Enterprises develops and manufactures security systems primarily for U.S. law enforcement agencies. It sells a broad range of tasers, sensors, and software that is integrated with the devices. Its Q4 2020 net income was $25.8 million, reversing a $12.4 million loss from a year ago. The improved bottom line came as Axon generated a nearly 32% YOY increase in revenue. The improved top line was largely driven by strong results for Taser 7, its latest device, including a $20 million order from an international customer. The company also saw increased demand for its cloud software product.
• AeroVironment Inc.: AeroVironment designs and manufactures small unmanned aircraft as well as fast-charge systems for electric industrial vehicle batteries. The company also sells antennae, sensors, and missile systems to customers in the U.S.

The comments, opinions and analyses expressed herein are for informational purposes only and should not be considered individual investment advice or recommendations to invest in any security or to adopt any investment strategy. While we believe the information provided herein is reliable, we do not warrant its accuracy or completeness. The views and strategies described on our content may not be suitable for all investors. Because market and economic conditions are subject to rapid change, all comments, opinions, and analyses contained within our content are rendered as of the date of the posting and may change without notice. The material is not intended as a complete analysis of every material fact regarding any country, region, market, industry, investment, or strategy.