Escalating geopolitical tensions are driving the profits of defense companies. Almost after two years, major defense corporations have shifted their stance significantly, with many anticipating robust demand in 2024. According to Reuters, on anticipation of aggressive actions from Russia and China, investments by the United States and its allies in costly weaponry and munitions is on an upsurge.
Optimistic Market Outlook
According to Wall Street estimates, as quoted on Reuters, shares of the largest defense companies are projected to continue their upward trajectory, beating the broader S&P 500 Index. The Dow Jones U.S. Select Aerospace & Defense Index and S&P Aerospace & Defense Select Industry Index have gained about 14.11% and 25.62%, respectively.
Per the Reuters article, shares of Lockheed Martin
[LMT](/market-activity/stocks/lmt), General Dynamics [GD](/market-activity/stocks/gd) and Northrop Grumman [NOC](/market-activity/stocks/noc) are estimated to climb 5-7% over the next 12 months.
Northrop Grumman and L3Harris Technologies
[LHX](/market-activity/stocks/lhx), two primary U.S. rocket manufacturers have both reported an upsurge in demand, with Northrop attributing a significant portion of the rise in demand to the increased need for its rocket motors and warheads which see extensive use in Ukraine.
Record U.S. Defense Policy Bill
On Dec 22, President Joe Biden signed the U.S. defense policy bill that authorizes a record allowance of $886 billion in military spending, marking an increase of 3% in the nation’s total national security budget.
According to Reuters, the Defense bill also includes policies such as aid for Ukraine and push-back against China in the Indo-Pacific region. Such aids, in turn, are expected to usher in order flows for defense contractors, enhancing their potential for generating revenue.
ETFs in Focus
The escalating Middle East crisis has resulted in a surge in defense stocks driven by increased demand for military equipment. Persisting tensions between Russia and Ukraine further contribute to the volatility within the geopolitical landscape.
The U.S. defense market is valued at $613.18 billion in 2023 and is estimated to witness a CAGR of 0.67%, reaching a valuation of $646.83 billion by 2031, according to Mordor Intelligence.
Against this backdrop, we highlight a few defense ETFs that can gain due to the complicated geopolitical landscape.
iShares U.S. Aerospace & Defense ETF (ITA)
iShares U.S. Aerospace & Defense ETF seeks to track the performance of the Dow Jones U.S. Select Aerospace & Defense Index with a basket of 35 securities. The fund has gathered an asset base of $6.03 billion and charges an annual fee of 0.40%
iShares U.S. Aerospace & Defense ETF has a Zacks ETF Rank #2 (Buy). ITA has gained 14.34% year to date and 20.53% over the past three months.
Invesco Aerospace & Defense ETF (PPA)
Invesco Aerospace & Defense ETF seeks to track the performance of the SPADE Defense Index with a basket of 53 securities. The fund has an asset base of $2.59 billion and charges an annual fee of 0.58%.
Invesco Aerospace & Defense ETF has a Zacks ETF Rank #3 (Hold). The fund has gained 18.27% year to date and 16.73% over the past three months.
SPDR S&P Aerospace & Defense ETF (XAR)
SPDR S&P Aerospace & Defense ETF seeks to track the performance of the S&P Aerospace & Defense Select Industry Index with a basket of 34 securities. The fund has gathered an asset base of $1.98 billion and charges an annual fee of 0.35%
SPDR S&P Aerospace & Defense ETF has a Zacks ETF Rank #2 (Buy). The fund has gained 24.62% year to date and 24.17% over the past three months.
Global X Defense Tech ETF (SHLD)
Global X Defense Tech ETF seeks to track the performance of the Global X Defense Tech Index with a basket of 34 securities. The fund has gathered an asset base of $4.7 million and charges an annual fee of 0.50%.
Global X Defense Tech ETF has gained 16.12% over the past three months and 1.98% over the past month.
(Disclaimer: This article has been written with the assistance of Generative AI. However, the author has reviewed, revised, supplemented, and rewritten parts of this content to ensure its originality and the precision of the incorporated information.)
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Get it free >> Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Lockheed Martin Corporation (LMT) : Free Stock Analysis Report Northrop Grumman Corporation (NOC) : Free Stock Analysis Report General Dynamics Corporation (GD) : Free Stock Analysis Report Global X Defense Tech ETF (SHLD): ETF Research Reports iShares U.S. Aerospace & Defense ETF (ITA): ETF Research Reports Invesco Aerospace & Defense ETF (PPA): ETF Research Reports SPDR S&P Aerospace & Defense ETF (XAR): ETF Research Reports L3Harris Technologies Inc (LHX) : Free Stock Analysis Report To read this article on Zacks.com click here.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
