Aerospace and defense stocks have seen a resurgence over the past year. The war in Ukraine reminded folks that the world remains a dangerous place. After many years of stagnant or shrinking defense budgets, significant powers such as Germany and Japan are ramping up military spending again. It’s not just Russian aggression causing this, either. Rising tensions around China and the Middle East, among other regions, are forcing governments to rethink the geopolitical map.
Additionally, the space race is on. And that’s true from both a commercial and defense perspective. Companies with leading space and satellite solutions should enjoy strong growth in the coming years.
This volatile economic environment adds to the appeal of aerospace and defense stocks. These sectors enjoy heavy government support and long-term contracts, ensuring consistent revenues regardless of broader economic conditions.
Putting it all together, these three aerospace and defense stocks are set to grow and prosper.
| LMT | Lockheed Martin | $478.37 |
| AVAV | AeroVironment | $85.62 |
| TXT | Textron | $72.90 |
Lockheed Martin (LMT)
Lockheed Martin (NYSE:LMT) is an all-in-one option for aerospace and defense stock investors. The blue-chip company has a heavy presence in providing key defense capabilities, such as fighter jets. The company also is involved in the commercial space, offering products and services for engines, radar systems, and other critical aircraft components.
However, an underappreciated part of Lockheed Martin’s business is its satellite operations. Satellite and space have become the second-largest part of the company’s overall business.
Lockheed’s satellite business should continue to post sharply above-average growth. Companies increasingly look to satellites for everything from communications platforms to remote monitoring and big data applications. The recent drama around spy balloons and purported unidentified flying objects may also boost demand.
Even before recent events, the military has increasingly focused on space. The U.S. set up its Space Force as a separate military branch. Whether on the ground, in the air, or in space, Lockheed Martin provides key capabilities to help provide security.
AeroVironment (AVAV)
For investors that want to buy stock in a company helping the fight in Ukraine, AeroVironment (NASDAQ:AVAV) is a great pick. AeroVironment produces the Switchblade system.
Switchblade is an advanced direct-fire loitering missile system. Switchblade can operate as a drone that can be sacrificed, rather than risking a human combatant. AeroVironment has a long history of developing unmanned aircraft systems (AUS) and tactical missile systems.
While AeroVironment has an extensive track record in the industry, the conflict in Ukraine has highlighted the value of these systems like never before. Last fall, AeroVironment announced that it is ramping up production to be able to send more drones to Ukraine. This includes replenishing the existing inventory of these systems while also producing a higher-capacity version of the unit.
AeroVironment also continues to gain momentum in other areas, with a new contract signed with the Marines for its Puma 3 battlefield drones.
Textron (TXT)
Textron (NYSE:TXT) is an aerospace company focused on helicopters. It produces helicopters for both commercial and military markets. Textron has a long-running history; founded in 1923, the company made it to the century mark this year.
Textron shares initially fell sharply during the pandemic around concerns about future commercial helicopter demand. But these worries proved to be misplaced. Textron’s sales have stabilized, and are now growing solidly once again.
Meanwhile, the company secured a huge and somewhat unexpected contract win. Last year, the Army gave a coveted new contract for the Future Long-Range Assault Aircraft (FLRAA) to the Textron Bell V-280. This came despite fierce competition from rival Boeing (NYSE:BA). Boeing is still appealing the outcome, but it seems Textron won the contract, which could result in up to $7.1 billion in revenue, and potentially run into the tens of billions over time.
This gives new life to the military side of Textron’s business. It offers a huge growth catalyst to an already cheap stock. Textron shares go for less than 15 times forward earnings, and analysts forecast double-digit earnings growth.
On the date of publication, Ian Bezek held a long position in LMT stock. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.