{"id":3430,"date":"2024-12-02T22:24:56","date_gmt":"2024-12-02T22:24:56","guid":{"rendered":"http:\/\/blog.valuengine.com\/?p=3430"},"modified":"2024-12-02T22:55:15","modified_gmt":"2024-12-02T22:55:15","slug":"taking-a-defensive-stance-on-defense-stocks","status":"publish","type":"post","link":"http:\/\/blog.valuengine.com\/index.php\/taking-a-defensive-stance-on-defense-stocks\/","title":{"rendered":"Taking a Defensive Stance on Defense Stocks"},"content":{"rendered":"<p><span style=\"font-weight: 400;\">Amidst widespread speculation, The\u00a0return of President Trump as commander-in-chief\u00a0could threaten earnings growth in the defense industry in 2025. Analysts seeing it this way point to these items on the perceived Trump agenda:<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Hardball negotiations with defense contractors led by the new Department of Government Efficiency co-heads Elon Musk and Vivek Ramaswamy;<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Trump\u2019s stated belief one major and obvious place that needs attention is the\u00a0 \u201cunbelievable waste and fraud\u201d involved in government\u00a0defense contracts;<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Supply changes have already suffered disruptions with their global supply chains amidst disruptions caused by political tensions;\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Planned tariffs may exacerbate cost problems in the supply chain;<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Amidst an aging specialized workforce population, cost increases due to wage inflation may be difficult to avoid;<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Trump has stated interest in charging NATO countries for defense support and otherwise abandoning overseas bases and deployment of personnel. This may create an inventory glut in equipment;\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">If Trump is successful in ending the war in Ukraine quickly, this could exacerbate a defense equipment inventory glut, cutting into demand for replacements.<\/span><\/li>\n<\/ul>\n<h5 style=\"text-align: center;\"><b>All 5,200+ stocks US and Canadian stocks, 16 sector groups, 200+ industries, and 600+\u00a0 ETFs have been updated:\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0<\/b><\/h5>\n<h5 style=\"text-align: center;\"><b>Two-week free trial:<\/b><a href=\"https:\/\/ww2.valuengine.com\/products-and-pricing\/\"><b> www.ValuEngine.com<\/b><\/a><b>\u00a0\u00a0<\/b><\/h5>\n<p><span style=\"font-weight: 400;\">Other analysts note the emphasis and need for new technology and see a simple shift in demand from traditional military equipment to more high-tech needs in aerospace and homeland security. They claim the American job market for sophisticated tech engineers is considerably younger and more well-stocked.\u00a0 Some have even postulated a boon for aerospace and defense companies under the new Trump regime.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Since the ValuEngine models focus solely on data, the only potential effect of such speculation on our predictive ratings are on analysts\u2019 earnings revisions and already-adjusting stock prices.\u00a0 Let\u2019s take a look at what our data-based models say about the short- and medium-term outlooks for the Aerospace\/Defense Industry.<\/span><\/p>\n<p>&nbsp;<\/p>\n<p><img loading=\"lazy\" class=\"size-full wp-image-3431 aligncenter\" src=\"http:\/\/blog.valuengine.com\/wp-content\/uploads\/2024\/12\/241202-aerospace-defense-2-5-rating-graphic.png\" alt=\"\" width=\"292\" height=\"117\" \/><\/p>\n<h5><\/h5>\n<h5 style=\"text-align: center;\"><b>Current ValuEngine reports on all covered stocks and ETFS can be viewed<\/b><a href=\"https:\/\/valuengine.com\/dashboard\/report\"><b> HERE<\/b><\/a><\/h5>\n<p><span style=\"font-weight: 400;\">The sector is currently rated <\/span><b>2.5 <\/b><span style=\"font-weight: 400;\">by our predictive price change model, which is below average.\u00a0 Since a 3 rating indicates Hold and a <\/span><b>2<\/b><span style=\"font-weight: 400;\"> rating is considered a Sell candidate, Aerospace\/Defense would be characterized as Hold\/Sell.\u00a0 In this regard, it ranks 14<\/span><span style=\"font-weight: 400;\">th<\/span><span style=\"font-weight: 400;\"> highest of our 15 sectors.\u00a0 The only lower-ranked sector is Energy\/Oils.\u00a0 Let\u2019s look at the statistical overview of the sector.\u00a0<\/span><\/p>\n<p>&nbsp;<\/p>\n<p><img loading=\"lazy\" class=\" wp-image-3432 aligncenter\" src=\"http:\/\/blog.valuengine.com\/wp-content\/uploads\/2024\/12\/241202-Aerospace-sector-Report-page.png\" alt=\"\" width=\"786\" height=\"1042\" \/><\/p>\n<h5 style=\"text-align: center;\"><b>Current ValuEngine reports on all covered stocks, Sectors and ETFS can be viewed<\/b><a href=\"https:\/\/valuengine.com\/dashboard\/report\"><b> HERE<\/b><\/a><\/h5>\n<p><span style=\"font-weight: 400;\">One fact made clear through comparing the second and third lines is that our model is predicting more difficult times ahead for the sector.\u00a0 In the past 12-months, the average Aerospace\/Defense stock price rose nearly 49%.\u00a0 In the next 12 months, the ValuEngine predictive model projects a return of -2.85%. Thud!\u00a0 In terms of its rank relative to other ValuEngine sectors, the sector continues to rank above average in growth categories, but below average in all valuation and volatility categories.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Three of the top five ranked stocks, all ranked <\/span><b>4 <\/b><span style=\"font-weight: 400;\">(Buy) from our predictive model in our sector report include:<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Spirit AeroSystems Holdings, Inc. (<\/span><b>SPR<\/b><span style=\"font-weight: 400;\">), a $4 billion company located in Wichita KS. It engages in the design, engineering, manufacture, and marketing of commercial aerostructures worldwide.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Wheels Up (<\/span><b>UP<\/b><span style=\"font-weight: 400;\">) \u2013 a $1.5 billion company, located in Chamblee, GA.\u00a0 It provides private aviation services in the United States and internationally.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Triumph Group, Inc. (<\/span><b>TGI<\/b><span style=\"font-weight: 400;\">), a $1.5 billion company based in Radnor PA.<\/span><b>\u00a0 TGI<\/b><span style=\"font-weight: 400;\"> designs, engineers, manufactures, repairs, overhauls, and distributes aircraft, aircraft components, accessories, subassemblies, and systems worldwide.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Since all of these are small cap stocks, how do the industry\u2019s three largest stocks, as ranked by market cap, stack up for projected performance?\u00a0\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">RTX Corp. (<\/span><b>RTX<\/b><span style=\"font-weight: 400;\">), formerly Raytheon Corp., a $150+ Billion company based in Arlington, VA, is an aerospace and defense company, provides systems and services for the commercial, military, and government customers in the United States and internationally.\u00a0 It is rated <\/span><b>3<\/b><span style=\"font-weight: 400;\"> (Hold).<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Lockheed Martin Corp.(<\/span><b>LMT<\/b><span style=\"font-weight: 400;\">) is a $125 Billion company based in Dayton, OH. It is the largest defense contractor in the world, serving in defense, space, intelligence, homeland security and information technology including cyber security to the U.S. Government, international customers and U.S. commercial &amp; other customers.\u00a0 It is rated <\/span><b>3 <\/b><span style=\"font-weight: 400;\">(Hold).<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Boeing Corp. (<\/span><b>BA<\/b><span style=\"font-weight: 400;\">) is a $95 Billion company based in Chicago IL.\u00a0 Unlike <\/span><b>RTX <\/b><span style=\"font-weight: 400;\">and <\/span><b>BA, <\/b><span style=\"font-weight: 400;\">the price of Boeing had taken a major beating during the past five years and has lost more than 30% during the past 12 months.\u00a0 Our predictive model is not looking for a short-term rebound.\u00a0 Its rating is <\/span><b>2<\/b><span style=\"font-weight: 400;\"> (Sell).\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">The next logical step is to investigate which ETFs serve the sector.\u00a0 There are six. Precisely half of these are by the three major index ETF providers trying to capture the sector.\u00a0 The other three all center on companies producing technology within the sector. As you might expect given the poor overall outlook ValuEngine\u2019s predictive model has for the sector, all three broad-based ETFs are rated poorly.\u00a0 In fact, all three (<\/span><b>ITA, PPA <\/b><span style=\"font-weight: 400;\">&amp; <\/span><b>XAR<\/b><span style=\"font-weight: 400;\">, names in table below<\/span><b>)<\/b><span style=\"font-weight: 400;\"> get our worst rating of <\/span><b>1 <\/b><span style=\"font-weight: 400;\">(Strong Sell). <\/span><b>SHLD <\/b><span style=\"font-weight: 400;\">and <\/span><b>ARKX<\/b><span style=\"font-weight: 400;\"> contain several non-US companies, have a shorter history, and are not currently listed by ValuEngine.\u00a0 SPDR Kensho Future Security ETF (<\/span><b>FITE<\/b><span style=\"font-weight: 400;\">) which uses a fundamental screen to select companies and weights has a somewhat less dismal rating of <\/span><b>2 <\/b><span style=\"font-weight: 400;\">(Sell).\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">This table displays some additional fast facts about these ETFs: Although iShares Aerospace &amp; Defense ETF (<\/span><b>ITA<\/b><span style=\"font-weight: 400;\">) has the most assets and the longest history, Invesco\u2019s <\/span><b>PPA <\/b><span style=\"font-weight: 400;\">ETF is broader and has better price returns in all four periods. \u00a0 When the sector rebounds, <\/span><b>PPA <\/b><span style=\"font-weight: 400;\">may deserve the longer look of the two.<\/span><\/p>\n<p><img loading=\"lazy\" class=\"alignnone size-full wp-image-3433\" src=\"http:\/\/blog.valuengine.com\/wp-content\/uploads\/2024\/12\/241202-Aerospace-ETF-table.png\" alt=\"\" width=\"931\" height=\"425\" \/><\/p>\n<h5 style=\"text-align: center;\"><b>Current ValuEngine reports on all covered stocks, Sectors and ETFS can be viewed<\/b><a href=\"https:\/\/valuengine.com\/dashboard\/report\"><b> HERE<\/b><\/a><\/h5>\n<p><span style=\"font-weight: 400;\">In conclusion, the article\u2019s title sums it up nicely.\u00a0 Given lower-than-average projected price returns, higher-than-average overvaluation, and potential political maelstroms of uncertainty in navigating the global geopolitics that lie ahead, I would consider being very cautious and even defensive about existing holdings in the Aerospace &amp; Defense sector. Based on ValuEngine data and analysis, I would not be looking to add to such positions on a relative basis.<\/span><\/p>\n<p>________________________________________________________________________________________________<\/p>\n<h5><b>By Herbert Blank<\/b><\/h5>\n<h5><b>Senior Quantitative Analyst, ValuEngine Inc<\/b><\/h5>\n<h5><a href=\"http:\/\/www.valuengine.com\/\"><b>www.ValuEngine.com<\/b><\/a><\/h5>\n<h5><b>support@ValuEngine.com<\/b><\/h5>\n<h5><b>All of the over 4,200 stocks, 16 sector groups, over 250 industries, and 600 ETFs have been updated on<\/b><a href=\"http:\/\/www.valuengine.com\/\"><b> www.ValuEngine.com<\/b><\/a><\/h5>\n<h5><b>Financial Advisory Services based on ValuEngine research available through<\/b><a href=\"http:\/\/www.valuenginecapital.com\/\"><b> ValuEngine Capital Management, LLC<\/b><\/a><\/h5>\n<h5><b>Free Two-Week Trial to all 5,000 plus equities covered by ValuEngine<\/b><a href=\"https:\/\/ww2.valuengine.com\/products-and-pricing\/\"><b> HERE<\/b><\/a><\/h5>\n<p><b>Subscribers log in <\/b><a href=\"https:\/\/valuengine.com\/dashboard\/login\"><b>HERE<\/b><\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Amidst widespread speculation, The\u00a0return of President Trump as commander-in-chief\u00a0could threaten earnings growth in the defense industry in 2025. Analysts seeing it this way point to these items on the perceived Trump agenda: Hardball negotiations with defense contractors led by the new Department of Government Efficiency co-heads Elon Musk and Vivek Ramaswamy; Trump\u2019s stated belief one &#8230; <a title=\"Taking a Defensive Stance on Defense Stocks\" class=\"read-more\" href=\"http:\/\/blog.valuengine.com\/index.php\/taking-a-defensive-stance-on-defense-stocks\/\" aria-label=\"More on Taking a Defensive Stance on Defense Stocks\">Read more<\/a><\/p>\n","protected":false},"author":7,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":[],"categories":[130,1,39],"tags":[559,2466,2114,2467,2465,2468,260,2469,661,2470,2464,2471],"_links":{"self":[{"href":"http:\/\/blog.valuengine.com\/index.php\/wp-json\/wp\/v2\/posts\/3430"}],"collection":[{"href":"http:\/\/blog.valuengine.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"http:\/\/blog.valuengine.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"http:\/\/blog.valuengine.com\/index.php\/wp-json\/wp\/v2\/users\/7"}],"replies":[{"embeddable":true,"href":"http:\/\/blog.valuengine.com\/index.php\/wp-json\/wp\/v2\/comments?post=3430"}],"version-history":[{"count":1,"href":"http:\/\/blog.valuengine.com\/index.php\/wp-json\/wp\/v2\/posts\/3430\/revisions"}],"predecessor-version":[{"id":3434,"href":"http:\/\/blog.valuengine.com\/index.php\/wp-json\/wp\/v2\/posts\/3430\/revisions\/3434"}],"wp:attachment":[{"href":"http:\/\/blog.valuengine.com\/index.php\/wp-json\/wp\/v2\/media?parent=3430"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"http:\/\/blog.valuengine.com\/index.php\/wp-json\/wp\/v2\/categories?post=3430"},{"taxonomy":"post_tag","embeddable":true,"href":"http:\/\/blog.valuengine.com\/index.php\/wp-json\/wp\/v2\/tags?post=3430"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}