Defense

The Allied Defense Fund: The Top Defense Stocks Benefiting from Soaring Defense Budgets

The global defense and aerospace industries are among the most influential in shaping power politics around the globe. The two continue to account for the most significant share of most country’s spending in an era where the focus is on the use of technology in warfare. As countries look to maintain and strengthen their military superiority, more and more spending is being directed to the two sectors.

Similarly, spending on the U.S. military is projected to increase by 3.3% in 2024 to $886.03 billion. The soaring spending comes after a brief period of stability following the U.S. withdrawal from Afghanistan. Since then, things have changed, and geopolitical tensions have gotten out of hand in Europe and the Middle East.

The dynamics of spending on the defense industry have changed significantly since Israel launched its war on Hamas, coming against the ongoing tussle between Russia and Ukraine. Soaring geopolitical tensions across the globe may force the U.S. government to increase its investment in the defense industry in the coming years, which could provide a tailwind to defense industry profits.

Defense stocks are attractive investments because they often have long-term, predictable government contracts. Likewise, companies in the defense industry offer some of the best investment opportunities thanks to their wide range of products and services. The companies that stand out are the ones that make bullets for missiles, warplanes, and even carriers. Likewise, some offer services to the military.

While defense stocks underperformed the overall market last year as the focus was on technology plays, the same cannot be said in 2024. Like healthcare stocks, the stocks are always expected to outperform in times of high inflation or economic downturns as long as there is demand for their products and services. Reelshares Allied Defense Fund offers one of the best ways of gaining exposure to some of the best defense and aerospace stocks well poised to benefit as countries bolster their defense budgets in the race to protect and safeguard their interest.

As the US, Israel, Russia, and Ukraine move to replenish their defense stockpiles, demand for various equipment and services to the military is expected to skyrocket. Likewise, as other countries try to strengthen their militaries, national security matters should continue to fuel demand.

Some of the defense stocks that stand out as solid long-term investments well poised to benefit from stable multiyear government contracts include:

Lockheed Martin

Lockheed Martin stands out as one of the best defense and aerospace companies based on how much business it does with the U.S. government. The company operates through four segments: aeronautics, missiles, and control and mission systems and space.

Consequently, it is always well positioned to benefit whenever the U.S. increases its defense spending. Being the lead contractor on the F-35 Joint Strike Fighter has seen it generate billions of dollars whenever there is strong demand for advanced fighter planes, high-tech missiles, and cutting-edge electronics.

Boeing

While Boeing is best known for commercial airplanes, it also does significant business in the defense sector. Consequently, it is ranked as one of the industry titans as it makes some of the biggest and most powerful aircraft and helicopters used by the U.S. Pentagon. The company is also involved in space pursuits.

The fact that Boeing has also branched into developing autonomous submarines underscores its edge in the defense sector.

Howmet Aerospace

Howmet Aerospace is a top aerospace company specializing in manufacturing lightweight metal products like jet engine components, titanium structural parts, aerospace fastening systems, and forged wheels. The company also provides defense solutions, including precision machining, integrated program management, and metals expertise.

Northrop Grumman

Amid the escalating tensions in the Middle East, Northrop Grumman is one of the companies worth paying attention to. It makes and distributes autonomous aircraft systems for vertical takeoff and tactical USR landing systems.

The company has also made a name for itself in developing stealth bombers and missiles in high demand in geopolitical tensions. It also makes submarines.

General Dynamics

Like Lockheed Martin, General Martin is another company that enjoys relative stability and growth owing to the amount of business it does with the U.S. government. The company boasts a robust portfolio for building tanks and land vehicles for any ground invasion.

In addition, General Dynamics boasts of one of the largest defense-focused I.T. and services businesses that affirms revenue stability even when the U.S. government contemplates trimming its equipment purchases.

Leidos Holdings

While the defense and aerospace sector usually focuses on companies that make big equipment missiles and bullets, Leidos Holdings offers exposure to information technology services.

The company offers national security solutions and air, land, sea, space, and cyberspace systems for the U.S. Intelligence Community and the Department of Defense. Some of its solutions include command and control platforms, data analytics, logistics, cybersecurity solutions, intelligence analysis, and operations support services.

TransDigm Group

TransDigm is a household name due to its credentials in supplying military and commercial aerospace components. Over the past decade, the stock has gained over 500%, affirming why it is one of the top defense stocks.

The robust growth stems from booming business as the company continues to make replacement parts for commercial and military aircraft. The company has also been on an acquisition drive to strengthen its sector edge.

L3Harris Technologies

L3Harris Technologies has made a name by providing mission-critical solutions for government and commercial customers. It offers intelligence surveillance and reconnaissance systems used in the military.

The company also builds communications avionics and satellite systems. Last year, the company moved to strengthen its prospects in the defense and aerospace sector with a $4.7 billion acquisition of Aerojet and Viasat’s tactical data link business for $2 billion.

RTX Corporation

Formerly known as Raytheon Technologies, RTX is a top aerospace and defense company that provides systems and services for military and government customers. Its Aerospace Systems segment offers aerospace and defense products and aftermarket service solutions for civil and military aircraft. Its Pratt & Whitney segment supplies aircraft engines for commercial, military, business jet, and general aviation customs.

While the commercial airplane business and Pratt & Whitney and Collins Aerospace Systems segments were hit hard during the pandemic, they have bounced back and continued to drive company sales growth.

The trend is expected to continue amid growing demand for military equipment and aircraft while travel demand also explodes.

Bottom Line

Soaring tensions in Southeast Asia, the unending Russian invasion of Ukraine, and the conflict in the Middle East are making the case for aerospace and defense stocks. Spending on defense continues to skyrocket as countries look to strengthen their national security and interests around the globe. Consequently, defense industry stocks remain solid long-term investments as they benefit from stable multiyear government contracts.

Reelshares Allied Defense Fund is one of the best investment vehicles for diversified exposure in the defense sector. The fund invests 40% of its capital in established defense contractors and allocates 30% to smaller defense companies. It also puts 20% of its capital in companies involved in emerging defense technologies that can transform the market. About 10% of the fund’s capital is invested in other funds specializing in the defense sector.

The Allied Defense Fund aims to deliver an annual internal rate of return of 15%. For the initial investment, investors can purchase shares of Allied Defense Fund directly from Reel Shares or financial intermediaries.

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