Top Defense Stocks for Q3 2022

NOC, PSN, and BAESY are top for value, growth, and momentum, respectively

The defense industry produces modern weaponry, including combat vehicles, ships, bombers, and fighter jets. Companies in the industry 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. Russia's ongoing invasion of Ukraine beginning in February sparked a rally in selected large defense stocks, including Lockheed Martin Corp., Northrop Grumman Corp., and Raytheon Technologies Corp.

The Invesco Aerospace & Defense ETF (PPA) holds a broad range of stocks, including some from companies that are not pure play defense companies, such as those involved in civilian aerospace manufacturing. However, it is the closest proxy available for the broader defense industry. While some defense stocks have recently rallied, PPA has slightly underperformed against the broader market with a total return of -4.4% over the last 12 months compared to the benchmark Russell 1000 Index’s total return of -3.5%.

Here are the top three defense stocks with the best value, the fastest growth, and the most momentum. The performance figures above and all statistics in the tables below are as of June 8, 2022.

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 that you’re paying less for each dollar of profit generated.

Best Value Defense Stocks
  Price ($) Market Capitalization (Market Cap) ($B) 12-Month Trailing P/E Ratio
Northrop Grumman Corp. (NOC) 472.45 73.4 13.1
BAE Systems PLC (BAESY) 39.70 31.3 13.2
Huntington Ingalls Industries Inc. (HII) 214.25 8.6 16.1

Source: YCharts

  • Northrop Grumman Corp.: Northrop Grumman is a global security company that provides services and security systems to clients in the aerospace, information systems, and electronics industries, among others. Its products include manned and unmanned aircraft, as well electronic warfare systems. On May 17, Northrop Grumman announced a quarterly dividend of $1.73 per common share. This marks a 10% dividend increase. The dividend is payable June 15 to shareholders of record as of May 31, 2022.
  • BAE Systems PLC: BAE Systems is a British defense contractor that manufactures military aircraft, guided weapons systems, naval ships and submarines for governments around the world.
  • Huntington Ingalls Industries Inc.: Huntington Ingalls is a shipbuilding company that designs, builds, and maintains nuclear and non-nuclear ships for the U.S. Navy and Coast Guard. It also provides ship repair and maintenance services. On May 23, Huntington Ingalls announced that its Newport News Shipbuilding division would hire roughly 5,000 people this year in order to meet the Navy's shipbuilding needs. This is part of a dramatic increase in workforce at that shipyard, which expects to hire some 21,000 people in the next 10 years to build U.S. aircraft carriers and submarines for the U.S. government.

Fastest-Growing Defense Stocks

These are the top defense stocks as ranked by a growth model that scores companies based on a 50/50 weighting of their most recent quarterly year-over-year (YOY) percentage revenue growth and most recent quarterly YOY earnings-per-share (EPS) growth. Both sales and earnings are critical factors in the success of a company. Therefore, ranking companies by only one growth metric makes a ranking susceptible to the accounting anomalies of that quarter (such as changes in tax law or restructuring costs) that may make one figure or the other unrepresentative of the business in general. Companies with quarterly EPS or revenue growth of more than 2,500% were excluded as outliers.

Fastest-Growing Defense Stocks
  Price ($) Market Cap ($B) EPS Growth (%) Revenue Growth (%)
Parsons Corp. (PSN) 40.62 4.2 111.1 8.5
TransDigm Group Inc. (TDG) 616.72 33.7 88.8 11.1
Heico Corp. (HEI) 146.68 19.9 21.6 15.5

Source: YCharts

  • Parsons Corp.: Parsons is a national security and critical infrastructure company. It provides services in areas such as cybersecurity, missile defense, transportation, and environmental remediation services. Parsons also offers waste and wastewater treatment services. On June 1, the company announced the completion of its acquisition of Xator Corp., a national security and missile defense company. The acquisition will strengthen Parsons' position with U.S. Special Operations Command and other government clients, as well as global critical infrastructure markets. The deal was valued at $400 million.
  • TransDigm Group Inc.: TransDigm Group provides design and production services for components for both commercial and military aircraft. Its products include controls, ignition systems, engine technology, and more. The company reported on May 10 fiscal results for Q2 FY 2022, ended April 2. Net income nearly doubled year-over-year (YOY) on rising sales. Key drivers were a favorable sale mix, as well as lower COVID-19 restructuring costs and smaller one-time refinancing costs relative to the prior-year quarter.
  • Heico Corp.: Heico designs, produces, and services products and components for a variety of industries, including aviation, defense, space, and telecommunications, among others. Its customers include airline companies, defense and space contractors, the Federal Aviation Administration, and military agencies.

Defense Stocks with the Most Momentum

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

Defense Stocks with the Most Momentum
  Price ($) Market Cap ($B) 12-Month Trailing Total Return (%)
BAE Systems PLC (BAESY) 39.70 31.3 34.0
Northrop Grumman Corp. (NOC) 472.45 73.4 29.4
General Dynamics Corp. (GD) 231.36 64.3 22.8
Russell 1000 N/A N/A -3.5
Invesco Aerospace & Defense ETF (PPA) N/A N/A -4.4

Source: YCharts

  • BAE Systems PLC: See company description above.
  • Northrop Grumman Corp.: See company description above.
  • General Dynamics Corp.: General Dynamics is an aerospace and defense company. It offers ship construction and repair services, land combat vehicles, weapons systems, munitions, and various technology products and services. On May 26, the Space Development Agency awarded a $324 million contract to both the company's business unit, General Dynamics Mission Systems, and Iridium Communications Inc. (IRDM). The companies will establish the ground Operations and Integration segment for part of the National Defense Space Architecture. The companies will also provide network operations and systems integration services.

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 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 in 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.

Article Sources
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  1. Bloomberg. "Defense Stocks Are Beating the S&P 500 This Year Amid Ukraine War."

  2. YCharts. “Financial Data.”

  3. Northrop Grumman Corp. "Northrop Grumman Increases Quarterly Dividend 10 Percent to $1.73."

  4. Huntington Ingalls Industries Inc. "HII’s Newport News Shipbuilding Hiring Thousands."

  5. Parsons Corp. "Parsons Completes Acquisition of Xator Corporation."

  6. TransDigm Group Inc. "TransDigm Group Reports Fiscal 2022 Second Quarter Results."

  7. General Dynamics Corp. "General Dynamics Mission Systems and Iridium Awarded $324 Million Ground Control and Operations Contract by the Space Development Agency."

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