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U.S. Defense Stocks Gain as Russia-Ukraine War Intensifies

·4 min read

The global stock market, including Wall Street, took a beating amid Russia’s latest hostile attack against Ukraine. Defense is perhaps the only industry that has been holding its ground amid the crisis and has also gained substantially.

The Dow Jones U.S. Aerospace & Defense Index has risen 10%, while the S&P 500 Aerospace & Defense (industry) index has seen a 9.1% upside since Feb 24, the day when Russia officially invaded Ukraine, by launching missile and artillery attacks. So, an investor interested in defense stocks may keep a tab on Lockheed LMT, Northrop NOC and General Dynamics GD.

Why Did Defense Stocks Gain?

Although tensions are high on ground zero, the Biden administration has pledged not to send any U.S. troops to Ukraine as it bears the possibility of sparking another world war, which of course will not do any good to the global economy. Nevertheless, major defense stocks surged as such geopolitical conflicts like war tend to boost prospects of weaponries, thereby bolstering growth expectations for defense contractors.

With America being the largest exporter of combat weapons around the world, the current situation has set the stage for the country’s defense contractors to win more contracts. In fact, the United States has been supporting Ukraine in building up strength against Russia in recent history. In September 2021, the two nations announced a strategic partnership through which America offered a new $60 million security assistance package, including additional Javelin anti-armor systems and other defensive lethal and non-lethal capabilities, to Ukraine. Impressively, the United States has committed $2.5 billion in support of Ukraine’s forces since 2014, including more than $400 million in 2021 alone. Naturally the latest Russian attack on Ukraine spiked U.S. defense majors’ share price, considering the strong ties existent between America and Ukraine.

To this end, it is also imperative to mention that while the Russia-Ukraine conflict was the primary catalyst driving the share price of the U.S. defense stocks over the past few days, Germany’s latest commitment of ramping up defense spending to more than 2% of its gross domestic product, finally meeting the NATO target, must have also contributed to the surge in defense stocks the last couple of trading sessions. This is because such hiked defense spending indicates more inflow of funds in the defense space, thus boosting growth prospects.

Defense Stocks to Gain

Considering the aforementioned discussion, we mention below a handful of U.S. defense stocks that witnessed a solid price surge following the latest Russia-Ukraine conflict, based on their already established ties with Ukraine, and even outperformed the S&P 500. As the war is intensifying with each passing day, we expect these stocks to gain further.

Lockheed Martin is the manufacturer of Javelin anti-armor systems, which forms an integral part of the aforementioned security assistance package offered by the Biden administration to Ukraine. Further, its F-35 Lightning II jets are set to be deployed on NATO's Southern Air Policing mission for the first time, in response to Russian actions in Ukraine.

LMT’s shares have gained 15.4% since Feb 24, thereby outperforming the S&P 500’s rise of 2%. The stock has a long-term earnings growth rate of 3.6%. The Zacks Consensus Estimate for 2022 earnings indicates growth of 18% from the 2021 reported figure.

General Dynamics builds combat tanks like Abrams. Three House Armed Services Republicans on Feb 28 urged the Biden administration to expedite the sale of 250 M1A2 Abrams tanks to Poland to reinforce NATO amid the standoff with Russia. If approved, this would surely boost GD’s revenues.

General Dynamics’ shares have gained 6.8% since Feb 24. The stock has a long-term earnings growth rate of 9.6%. The Zacks Consensus Estimate for 2022 earnings implies growth of 5.3% from the 2021 reported figure.

Northrop Grumman is a leading provider of full-spectrum cyber security across land, air, sea and space. The fact that the United States and Ukraine prioritized cybersecurity issues in their partnership bolsters Northrop’s prospects, which have increased manifold considering the latest escalated war situation.

Northrop’s shares have gained 15.3% since Feb 24. The stock has a long-term earnings growth rate of 9.6%. The Zacks Consensus Estimate for 2022 earnings suggests growth of 5.3% year over year.

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