Defense Stocks Poised to Gain as Geopolitical Tensions Keep Rising: Time to Buy?
Amid escalating geopolitical risks in the past few months, attention has turned to defense stocks. While challenges in the defense industry have affected their performance relative to the index since last year, the continued influx of orders these companies are receiving suggests things could be about to change for this sector.
There was a surge in global military spending following Russia's invasion of Ukraine last year. Total global spending surged by 3.7% YoY to reach just above $2 trillion. Recent events, such as the conflict between Israel and Hamas, highlight the enduring trend of increased defense spending globally.
This ongoing geopolitical uncertainty has prompted countries to bolster their defenses, indicating that defense stocks may become prominent in long-term investment portfolios. So in this piece, we will take a look at three prominent defense companies you can consider adding to your portfolio as countries keep increasing their defense budgets.
Examining the long-term performance, a portfolio comprising 6 defense stocks has lagged behind the S&P 500 since 2020. Despite a moderate upward trajectory for both the S&P 500 and defense stocks after 2020, the latter has lagged behind as the former continues to surge.
Source: InvestingPro
The U.S. defense industry has grappled with challenges that were reflected in the earnings reports of companies within this sector. Issues during the production phase, impeding delivery targets, alongside supply chain and employment challenges, have been notable hurdles.
Nevertheless, the substantial backlogs and orders stand out as key factors with significant upside potential for these companies in the upcoming periods. This resilience indicates that market demand remains
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