In this article, we will discuss the 11 best defensive defense stocks to buy heading into 2023. You can skip our detailed industry analysis and go directly to the 5 Best Defense Stocks to Buy Heading Into 2023.
The defense industry consists of the development, manufacturing, and sales of air-based, land-based, and sea-based military support and auxiliary equipment such as satellites, sonars, radars, etc. The defense sector is extremely important for countries around the world, as strong military prowess often amounts to a strong influence over other countries and organizations.
Spending in the defense sector has recently been a subject of contention, with many people arguing that military expenditure is often wasteful and could be better spent on other priorities, such as healthcare, education, or infrastructure. On the other hand, many people term high levels of defense spending to be necessary to ensure the security and stability of a country, and the war in Ukraine certainly solidified this view as it became a tailwind for defense spending across the world. The global defense market was valued at $452.69 billion in 2021 and is expected to grow at a CAGR of 5.8% to $604.82 billion in 2026. China, India, The United States, The U.K., and Russia remain the chief contributor to global military spending, accounting for about 62% of the total military spend in 2021. In addition, global military spending surpassed $2 trillion for the first time in 2021.
Just like all other industries, technology and, in particular, artificial intelligence has had a major impact on the defense sector. In 2021, The U.S. Army gave contracts for the development of robot combat vehicles that will be able to fight alongside infantry and will have the necessary tools to even take on armored personnel carriers, trucks, and troops. Corporations that develop and manufacture air-based defense systems are increasingly investing in autonomous fighter jets that will be able to conduct tasks such as collecting information or engaging with a potential threat without the need for a human pilot.
Our Methodology
To come up with 11 best defensive defense stocks to buy heading into 2023 we have picked companies operating in the defense sector that are currently paying dividends to investors. We have ranked the companies in ascending order of their forward annual dividend yields. Defense companies are often viewed as value companies that provide steady returns to shareholders via dividends.
11. Woodward, Inc. (NASDAQ:WWD)
Number of Hedge Fund Holders: 19
Forward Annual Dividend Yield as of December 23: 0.81%
Founded in 1870, Woodward, Inc. (NASDAQ:WWD) is a global company that provides innovative design, engineering, and manufacturing solutions for the aerospace, defense, and energy markets. Woodward, Inc. (NASDAQ:WWD) has a diversified product portfolio that includes fuel pumps and injectors, actuators, control systems, and other components used in aircraft, engines, and power generation systems. The company also provides repair, overhaul, and maintenance services for its products. Woodward, Inc. (NASDAQ:WWD) currently provides an annual dividend yield of 0.81%.
On October 10, 2022, Myles Walton, an analyst at Wolfe Research, started covering Woodward, Inc. (NASDAQ:WWD) with a price target of $100 and an Outperform rating on the stock. According to the analyst, the shipset wins places the company to benefit from a rise in commercial OEM demand.
According to Insider Monkey’s database, 19 hedge funds held stakes in Woodward, Inc. (NASDAQ:WWD) at the end of the third quarter. Eagle Capital Management remained the leading stakeholder in the company at the end of Q3 2022.
In addition to Woodward, Inc. (NASDAQ:WWD), L3Harris Technologies, Inc. (NYSE:LHX), Raytheon Technologies Corporation (NYSE:RTX), and Kaman Corporation (NYSE:KAMN) are included in our list of 11 best defense stocks to buy heading into 2023.
Here is what Carillon Eagle Small Cap Growth Fund has to say about Woodward, Inc. (NASDAQ:WWD) in its Q1 2022 investor letter:
Woodward (NASDAQ:WWD) develops and produces control systems and energy conversion solutions and components for the aerospace and industrial end markets. The company’s stock was a strong performer in the quarter, as the end markets it serves began recovering in the second half of 2021 from a COVID-induced slowdown. Woodward’s relatively high exposure to narrow-body commercial jets should be a positive in the near-term, as narrow-body manufacturing, along with the demand for Woodward’s aftermarket components, is seeing a quicker recovery and is a growing share of the total fleet over their wide-body counterparts. Current energy and power demand is driving growth in power generation, as well as oil, gas, and alternative fuels, which has benefited the industrial side of the business.
10. Elbit Systems Ltd. (NASDAQ:ESLT)
Number of Hedge Fund Holders: 1
Forward Annual Dividend Yield as of December 23: 1.16%
Headquartered in Haifa, Israel, Elbit Systems Ltd. (NASDAQ:ESLT) is a global technology company that provides a range of products and services for the aerospace, defense, and homeland security markets. Elbit Systems Ltd. (NASDAQ:ESLT) has a diverse product portfolio that includes aircraft and helicopter systems, land and naval systems, unmanned systems, and cyber security solutions. The company also provides a range of services, including simulation and training, maintenance and repair, and system integration. The company currently offers a dividend yield of 1.16% to investors.
On November 29, 2022, Elbit Systems Ltd. (NASDAQ:ESLT) reported its third-quarter results. The company’s revenue was reported at $1.35 billion, missing market expectations by $14.06 million. The normalized EPS stood at $1.40 for the quarter. The management noted that the company is company’s increasing its investment in business development to take advantage of the opportunity arising from rising defense budgets.
At the end of Q3 2022, 1 hedge fund in Insider Monkey’s database was long Elbit Systems Ltd. (NASDAQ:ESLT). ARK Investment Management remained the leading stakeholder of the company at the end of Q3 2022.
9. Northrop Grumman Corporation (NYSE:NOC)
Number of Hedge Fund Holders: 46
Forward Annual Dividend Yield as of December 23: 1.30%
Northrop Grumman Corporation (NYSE:NOC) is a leading global defense and aerospace company that provides a range of products and services for military and commercial customers. Northrop Grumman Corporation (NYSE:NOC) has a diversified product portfolio that includes aircraft, missiles, space systems, and cybersecurity solutions. The company also provides a range of services, including logistics, maintenance, and repair. Northrop Grumman Corporation (NYSE:NOC) provides a dividend yield of 1.30% to investors currently.
On October 28, 2022, Peter Arment, an analyst at Baird, increased his price target on Northrop Grumman Corporation (NYSE:NOC) to $570 from $529 while keeping an Outperform rating on the stock. The analyst’s bullish view on the reacceleration of growth in 2023 remains unchanged despite a miss in third-quarter results.
46 hedge funds were long on the company’s stock at the end of the third quarter, according to Insider Monkey’s database. Yacktman Asset Management had the biggest long position in the company at the end of Q3 2022.
LRT Capital made the following comment about Northrop Grumman Corporation (NYSE:NOC) in its October investor letter:
Based in Virginia, Northrop Grumman Corporation (NYSE:NOC) is one of the world’s largest defense contractors with annual revenue of more than $30 billion. The company operates in a cozy oligopoly, that after decades of consolidation the US defense market is now controlled by five large companies: The Boeing Company (BA), General Dynamics Corporation (GD), Lockheed Martin Corporation (LMT), Northrop Grumman Corporation (NOC), and Raytheon Technologies Corporation (RTX).
Industry barriers to entry are immense, government procurement cycles are extremely long, and the consolidated industry structure reflects this. This industry structure has allowed Northrop to earn stable mid-teens returns on invested capital (ROIC) and grow earnings per share at a rate of over 13% per year in the past decade, despite a topline that has grown only in-line with inflation. Even after the recent run-up in the stock price, it trades at approximately 15x, next year’s earnings estimates, far below the S&P 500 index, despite being an above average company. While nominally, there are five major defense contractors, the true industry concentration is even higher because not all companies compete in all possible business segments. General Dynamics’ division submarine division, Electric Boat, is the sole supplier of nuclear power submarines in the United States. Lockheed Martin is the sole supplier of the F-35 and F-22. Northrop was the sole bidder on the contract to develop the next generation of intercontinental ballistic missiles; and so on… (Click here to read the full text)
8. BWX Technologies, Inc. (NYSE:BWXT)
Number of Hedge Fund Holders: 28
Forward Annual Dividend Yield as of December 23: 1.50%
Founded in 1867, BWX Technologies, Inc. (NYSE:BWXT) is a leading global provider of advanced nuclear technologies. In addition to its nuclear technologies business, BWX Technologies, Inc. (NYSE:BWXT) also has a defense segment that provides products and services for the defense and aerospace markets. The company's defense products include propulsion systems for missiles, target drones, and other applications. BWX Technologies, Inc. (NYSE:BWXT) currently provides an annual dividend yield of 1.50%.
On November 29, 2022, Tate Sullivan, an analyst at Maxim, increased the price target on BWX Technologies, Inc. (NYSE:BWXT) to $70 while keeping a Buy rating on the company’s stock. The analyst increased price target is based on BWX Technologies, Inc. (NYSE:BWXT) developing a prototype mobile nuclear microreactor for U.S. military bases in 2023 and 2024.
At the end of Q3 2022, 28 hedge funds in Insider Monkey’s database were long BWX Technologies, Inc. (NYSE:BWXT). Cardinal Capital remained the leading stakeholder of the company at the end of Q3 2022.
7. Cadre Holdings, Inc. (NYSE:CDRE)
Number of Hedge Fund Holders: 7
Forward Annual Dividend Yield as of December 23: 1.51%
Cadre Holdings, Inc. (NYSE:CDRE) is involved in the design and production of essential safety and survivability equipment. Cadre Holdings, Inc. (NYSE:CDRE) provides equipment globally to federal agencies, the outdoor recreation sports industry, and personal protection industries. Its operations are divided into two segments: Products and Distribution. The company currently offers a dividend yield of 1.51% to investors.
On November 11, 2022, Jeff Van Sinderen, an analyst at B. Riley, increased his price target on Cadre Holdings, Inc. (NYSE:CDRE) to $38 while keeping a Buy rating on the stock. The company posted solid Q3 results, with revenue of $111.55 million, beating market expectations by $4.37 million. The company’s Normalized EPS of $0.24 beat market expectations by $0.04.
As per Insider Monkey’s database, 7 hedge funds owned stakes in Cadre Holdings, Inc. (NYSE:CDRE) at the end of the third quarter. Greenhouse Funds remained the leading stakeholder of the company at the end of Q3 2022.
6. General Dynamics Corporation (NYSE:GD)
Number of Hedge Fund Holders: 35
Forward Annual Dividend Yield as of December 23: 2.04%
General Dynamics Corporation (NYSE:GD) is headquartered in Falls Church, Virginia, and is a global aerospace and defense company that provides a range of products and services for military, government, and commercial customers. General Dynamics Corporation (NYSE:GD)’s product portfolio includes aircraft, submarines, surface ships, land and amphibious combat systems, and cybersecurity solutions. General Dynamics Corporation (NYSE:GD) currently provides an annual dividend yield of 2.04%.
On October 27, 2022, Ken Herbert, an analyst at RBC Capital, increased his price target on General Dynamics Corporation (NYSE:GD) to $275 from $270 while keeping an Outperform rating on the stock. According to the analyst, the company reported strong third-quarter results, and he believes that the result will help the investor confidence going into 2023.
According to Insider Monkey’s database, 35 hedge funds owned stakes in the company at the end of the September quarter. Longview Asset Management held the biggest stake in General Dynamics Corporation (NYSE:GD) at the end of Q3 2022.
In its Q2 2022 investor letter, Oakmark Funds, an asset management firm, highlighted a few stocks and General Dynamics Corporation (NYSE:GD) was one of them. Here is what the fund said:
Finally, General Dynamics Corporation (NYSE:GD)’s defense business enabled the stock to resist the bear market’s downward pressure. We eliminated the position to fund more attractive holdings.
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Disclosure: None. 11 Best Defense Stocks to Buy Heading Into 2023 is originally published on Insider Monkey.
