We recently published a list of 10 Best Defense Stocks To Buy Now. In this article, we are going to take a look at where HEICO Corporation (NYSE:HEI) stands against other defense stocks to buy now.
As we move into 2025 and beyond, the defense industry stands at a critical juncture, where technological advancements, evolving geopolitical threats, and increased spending from both public and private sectors are converging to shape the future of aerospace and defense (A&D). The years ahead promise significant growth opportunities for companies within the sector, especially those positioned at the forefront of innovation and strategic alignment. This article aims to provide a detailed overview of the best investment opportunities in the defense sector, which will be heavily influenced by emerging technologies, hypersonic developments, and the ongoing digital transformation of the industry.
According to Deloitte, one of the most exciting developments shaping the defense landscape in years ahead is the emergence of supersonic and hypersonic technologies. NASA’s X-59 QueSST program has been pushing the boundaries of quiet supersonic travel, aiming to reduce sonic boom intensity and revolutionize high-speed aviation. While this technology is still in its nascent stages, manufacturers are optimistic about its potential, having already secured significant investments and collaborations with major airlines. This optimism reflects the increasing recognition that supersonic travel may not just be a technological marvel but an economically viable solution for future air travel.
In addition to supersonic travel, the defense sector is witnessing an unparalleled surge in demand for hypersonic technology, both for offensive and defensive purposes. The U.S. Department of Defense (DOD) has allocated a substantial budget in fiscal year 2024 to develop and test hypersonic capabilities, including glide vehicles and cruise missiles. As this technology inches closer to operationalization, defense companies are expected to accelerate their efforts to bring hypersonic weapons systems to market, which will likely drive growth in the sector for years to come.
Looking ahead, the A&D industry’s growth will be driven by a combination of defense and commercial spending. With escalating geopolitical tensions, the demand for next-generation defense capabilities is at an all-time high. The global defense budget surpassed $2.24 trillion in 2022, and the U.S. DOD has requested $842 billion for fiscal year 2024, a 3.2% increase from the previous year. This funding surge is set to propel innovation in areas such as artificial intelligence (AI), advanced technologies, and the modernization of air, ground, and naval vehicles, all of which will play a crucial role in shaping the defense sector over the next decade.
Investors should pay close attention to companies involved in the defense supply chain, particularly those engaged in research and development (R&D) of cutting-edge defense equipment. The DOD’s emphasis on AI, microelectronics, quantum computing, and advanced propulsion systems is expected to fuel rapid technological advancements. By focusing on these areas, defense firms can maintain their competitive edge, providing ample opportunities for investors looking to capitalize on the sector’s growth potential.
In addition to traditional defense technologies, the space sector is becoming an increasingly important part of the A&D industry’s future. U.S. spending on space-related defense initiatives has risen sharply, with the U.S. Space Force (USSF) requesting $30.1 billion for fiscal year 2024. This represents a 15% increase from the previous year, and the trend is expected to continue into 2025 and beyond as the U.S. works to maintain its strategic advantage in space. Investments in cybersecurity, space exploration, and resilient space forces will remain a key focus, positioning companies in the space and defense sectors for long-term growth.
While the defense industry is set to thrive in the coming years, it is not without its challenges. Inflation, which has been a persistent issue in recent years, is expected to remain a concern as the industry grapples with the rising costs of materials and production. In real terms, the U.S. defense budget increase of 3.2% for fiscal year 2024 may be overshadowed by inflation rates, currently hovering around 6%. This could limit the DOD’s flexibility in launching new missions or advancing certain technologies, as resources are reallocated to cover essential operational costs. Despite these headwinds, companies that can innovate and streamline their supply chains will likely find ways to mitigate these risks.
Commercial aerospace is another area that will see significant investment in the years to come. The recovery of international and domestic passenger traffic to pre-pandemic levels is projected to drive new aircraft orders, with increased spending on digitalization, new product development, and next-generation technologies like Advanced Air Mobility (AAM) and space exploration. Companies that can tap into these emerging markets will find themselves well-positioned to benefit from the broader recovery of the aerospace sector.
Moving forward, the AAM sector, in particular, is expected to transition from R&D to full-scale manufacturing and commercialization. Aircraft manufacturers are targeting type certification for their AAM vehicles, with the first wave of commercialization anticipated in 2025. To support these efforts, substantial investments in infrastructure—such as vertiports, charging stations, and pilot training facilities—are expected to drive long-term growth in this emerging market. Companies that position themselves as leaders in AAM technology will be at the forefront of this transformation, offering attractive investment opportunities for those with a forward-looking perspective.
The future of the defense industry also hinges on the successful integration of digital tools throughout the supply chain. The concept of the “digital thread,” which connects engineering, manufacturing, and aftermarket activities, is becoming increasingly important as companies look to streamline their operations and reduce time-to-market for new products. By embracing digital transformation, A&D companies can accelerate the certification and commercialization of new technologies, providing a significant competitive advantage in a rapidly evolving industry.
Furthermore, the importance of cybersecurity in the defense sector cannot be overstated. As the industry becomes more digitally interconnected, the risk of cyberattacks increases. In response, defense companies are expected to invest heavily in cyber-resiliency measures to protect sensitive data and critical infrastructure. This focus on cybersecurity will be particularly relevant in 2025 and beyond, as companies work to safeguard their operations against increasingly sophisticated cyber threats.
In addition to technology and innovation, geopolitical factors will continue to shape the defense industry in years ahead. The ongoing conflict between Russia and Ukraine, tensions in the South China Sea, and the broader competition for global dominance between the U.S. and China are expected to drive further increases in defense spending. The U.S. DOD is investing heavily in next-generation technologies to maintain its strategic advantage in these areas, with a focus on AI, quantum computing, and space capabilities.
Moreover, the private sector’s role in defense innovation is expected to grow as the DOD continues to engage with small businesses, startups, and academia to accelerate the integration of emerging technologies. Initiatives like the Defense Innovation Unit (DIU) and AFWERX are helping to bridge the gap between the government and the private sector, fostering innovation and driving growth in the defense industry.
For investors, companies that can successfully navigate these partnerships and bring new technologies to market will offer compelling investment opportunities. As the defense industry looks toward the future, the companies that can embrace technological advancements, adapt to changing geopolitical dynamics, and manage inflationary pressures will be best positioned for long-term success. For investors, identifying the best defense stocks to buy now will require a keen understanding of these trends and an eye for companies that are leading the charge in innovation, digital transformation, and operational excellence.
Our Methodology
For this article we first screened for companies operating in the defense sector and picked the 30 largest companies operating in the space. We then sourced the hedge fund sentiment for these companies from Insider Monkey’s proprietary database of 912 elite money managers. We narrowed down our selection to stocks that were the most widely-held by hedge funds and then ranked them in ascending order of the number of hedge fund holders, as of Q2 2024.
At Insider Monkey we are obsessed with the stocks that hedge funds pile into. The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A fighter jet in formation, revealing the prowess of the companies defense arm.
HEICO Corporation (NYSE:HEI)
Number of Hedge Fund Holders: 53
HEICO Corporation (NYSE:HEI), a major player in the defense and aerospace industries, stands out as a top defense stock to consider. The company’s impressive performance in recent quarters highlights its strength and resilience, making it a compelling investment for those looking to capitalize on the defense sector’s growth. In the third quarter of fiscal 2024, HEICO Corporation (NYSE:HEI) delivered record results, showcasing its robust position in both the commercial aviation and defense markets. Consolidated net income surged 34% to $136.6 million, or $0.97 per diluted share, up from $102 million, or $0.74 per diluted share, in the same period last year. This significant increase underscores HEICO Corporation (NYSE:HEI) effective management and operational excellence. The Flight Support Group, a key component of HEICO Corporation (NYSE:HEI), achieved all-time highs in net sales and operating income, with net sales up 68% and operating income rising 72% year-over-year. This performance was driven by a 15% organic growth in demand for commercial aerospace products and services, coupled with the positive impact of recent acquisitions.
Financial metrics further bolster HEICO Corporation (NYSE:HEI) investment appeal. The company’s consolidated EBITDA climbed 45% to $261.4 million, up from $179.8 million a year ago. This growth was accompanied by a reduction in the net debt-to-EBITDA ratio to 2.11x, down from 3.04x previously. Such a strong balance sheet and improved leverage position HEICO well for future growth and financial stability. Additionally, operating cash flow increased by 47% to $214 million, reflecting the company’s robust cash generation capabilities.
HEICO’s acquisition strategy has also been fruitful, with recent deals enhancing its product offerings and market reach. Notable acquisitions include the purchase of assets from Honeywell International to support key cockpit display products and the acquisition of Capewell Aerial Systems’ aerial delivery and descent divisions. These strategic moves not only diversify HEICO Corporation (NYSE:HEI) portfolio but also position it for continued growth in the defense sector.
The Electronic Technologies Group, while experiencing slight declines in certain product categories, has seen strong demand in defense, space, and aerospace sectors. The group’s operating margin improved to 23.5%, indicating effective cost management and operational efficiency. Overall, HEICO’s impressive financial performance, strategic acquisitions, and strong market position make it a standout choice for investors seeking exposure to the defense sector. With continued growth in defense spending and HEICO Corporation (NYSE:HEI) proven ability to capitalize on market opportunities, the company represents a solid investment in the defense space.
Overall, HEI ranks 4th on our list of best defense stocks to buy now. While we acknowledge the potential of HEI as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than HEI but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.