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Proprietary Data Insights Financial Pros Top Country ETF Searches This Month
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Investing in European Defense As we note in our main story below, governments are ramping up defense spending, in part, to backfill weapons given to Ukraine. Now, most stocks we’re familiar with – Lockheed Martin (LMT), Raytheon (RTX), and Northrop Grumman (NOC) – generate +80% of their revenues from the U.S. and about 5%-8% from Europe. But if you want to get more exposure to the European markets, you’ll have to look overseas. A few companies that are worth a look include: BAE Sytems – Britain’s biggest defense company. Leonardo – Italian multinational contractor for the military Thales – A French tech firm with nearly half its business dedicated to defense and security. Now, these are stocks that are listed on other exchanges. You can acquire shares of the company through OTC markets in the United States. However, if you’re interested in investing in these or other foreign companies, speak with your broker beforehand. |
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Defense |
War Backlog |
Key Takeaways:
Apparently, someone forgot to tell the Pentagon that Javelin and Stinger missiles aren’t really something you lend. Now, the U.S. government is scrambling to replenish thousands of the missiles taken from European and American stockpiles that were given to Ukraine. Not so Fast Congress is behind the restocking effort, forking over $3.5 billion to the Pentagon just this month. And there are no shortage of politicians lining up to give more. There’s just one problem. We can’t make them that quickly. Lockheed Martin (LMT) and Raytheon Technologies (RTX) make the anti-tank Javelin through a partnership agreement. Raytheon manufactures the Stinger missiles, which shoot down aircraft. Ramping up production on active lines isn’t as easy as flicking a switch. Expanding those lines takes even longer. And guess what? Companies are hesitant to jump into the mix without formal contracts. With a history of Wall Street hammering those who jumped the gun, most companies want the funds before starting any ramp in production. Don’t Forget the Little Guys However, the problem extends beyond the major players. There are hundreds of small suppliers working desperately to locate the required components to build the missiles. And as you might have guessed, supply chain problems…that’s still a thing. The product problems prompted the Biden Administration to review sending older Russian-made air defense systems to shore up Ukraine’s defenses. Now, the President can invoke the Defense Production Act which allows defense-related contracts to cut the line on required components ahead of other domestic industries such as autos. But, that doesn’t guarantee much when you’re looking at so many different components. The Bottom Line: If and when the U.S. government does agree for funding that the defense names can rely on, they’ll begin to ramp production. Keep in mind, many of these defense companies also sell to allied nations in Europe. So they can see orders hit from multiple sources at once. Many of the defense stocks, including Lockheed Martin (LMT), Raytheon (RTX), and Northrop Grumman (NOC) have rallied to all-time highs as the war in Ukraine continues. At these prices, the defense stocks have a lot of assumed growth built in. So be careful if you are looking at these for long-term investments. If you’re looking for an ETF in the space, check out the iShares ITA Aerospace and Defense ETF. |
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