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Aerospace-Defense Outperforms S&P 500 YTD: 4 Stocks to Buy

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Stocks from the U.S. Aerospace-Defense space have been rallying so far this year, after witnessing tough times in 2020, thanks to the COVID-19 impacts, particularly on the commercial aerospace section.  Evidently, iShares U.S. Aerospace & Defense ETF (ITA) has gained 14.7% year to date, after suffering 14.2% decline in 2020.

Apart from making a stark recovery, the fund has also successfully outperformed the S&P 500’s growth of 11.7% year to date.

Let's take a closer look at the factors that have been backing the stellar performance of defense stocks so far this year.

Impressive Budget Proposal

U.S. President Joe Biden submitted his first budget request in detail to Congress on May 28, which included an investment option worth $715 billion for the Department of Defense (DoD) during fiscal 2022. The proposal for DoD indicates a 1.6% increase from the prior year’s enacted amount of $703.7 billion. Interestingly, this budget proposed the largest-ever research, development, test and evaluation request worth $112 billion, reflecting a 5.1% increase over fiscal 2021. No doubt, such a stellar proposal was cheered by investors keeping a watch on the defense space.

Improving Air Traffic Numbers

There has been a noticeable improvement in global air traffic lately. Empirically, seasonally adjusted (SA) revenue-passenger-kilometers (RPKs) increased 5.1% sequentially in the month of April 2021, particularly driven by a smooth pace of vaccination across nations, as stated by the International Air Transport Association. This must have been encouraging investors with a keen interest in commercial aerospace stocks like Boeing BA and Airbus, as is evident from the more than 10% gain observed in their share price year to date.  

Cross Border Conflicts: Another Catalyst

A long-brewing conflict between Israel and Palestine has once again intensified in the recent times, when we witnessed a rampant exchange of rocket and missiles hurled by Israel militants and Palestine’s Hamas group toward each other in the month of May 2021. This resulted in an immediate spike in the share price of prominent defense contractors like Lockheed Martin LMT, Boeing and Raytheon Technologies RTX, with all of them actively supporting Israel by supplying products and offering other defense-related research and capabilities.

Are Prospects Bright?

Banking on the aforementioned catalysts, we remain optimistic about the near-term growth prospect of Aerospace-Defense stocks. Looking ahead, Q2 earnings of the Zacks Aerospace sector, which houses prominent aerospace and defense players, are expected to witness 160% year-over-year growth on 14.1% revenue rise. To know more, read our Earnings Preview.

Our Picks

Considering the aforementioned impressive prospects of the Aerospace-Defense space, we have selected four stocks from this space that carry a Zacks Rank #1 (Strong Buy) or 2 (Buy) and are fundamentally strong.

Teledyne Technologies TDY: It is an industrial conglomerate that serves the markets of aerospace and defense, oceanographic research, deepwater oil and gas exploration and a few more. This Zacks Rank#1 stock boasts a long-term earnings growth estimate of 18.3%, while the Zacks Consensus Estimate for 2021 sales indicates year-over-year increase of 44.2%. You can see the complete list of today’s Zacks #1 Rank stocks here.

Moog MOG.A:  It is a designer, manufacturer, and integrator of precision motion control products and solutions that are used in military and commercial aircraft, satellites and space vehicles, launch vehicles and missiles. This Zacks Rank #2 stock boasts a four-quarter average earnings surprise of 49.77%, while the Zacks Consensus Estimate for its fiscal 2021 earnings indicates a year-over-year increase of 3.3%.

Textron TXT: It is a global multi-industry company that manufactures aircraft, automotive engine components and industrial tools. This Zacks Rank#2 stock boast a long-term earnings growth estimate of 25%, while the Zacks Consensus Estimate for its 2021 sales indicates a year-over-year increase of 7.8%.

VirTra VTSI: It offers science-based de-escalation training for law enforcement & judgmental firearm training simulators for military personnel. This Zacks Rank#2 stock has a long-term earnings growth estimate of 40%, while the Zacks Consensus Estimate for its 2021 sales implies a year-over-year increase of 9.3%.

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The Boeing Company (BA) : Free Stock Analysis Report
 
Lockheed Martin Corporation (LMT) : Free Stock Analysis Report
 
Textron Inc. (TXT) : Free Stock Analysis Report
 
Teledyne Technologies Incorporated (TDY) : Free Stock Analysis Report
 
Moog Inc. (MOG.A) : Free Stock Analysis Report
 
VirTra, Inc. (VTSI) : Free Stock Analysis Report
 
Raytheon Technologies Corporation (RTX) : Free Stock Analysis Report
 
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Zacks Investment Research