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Back in February and March 2020, aerospace and defense stocks were in freefall. Suddenly, instead of symbolizing the speed and connectivity of the modern economy, airports around the world became ghost towns. Likewise, many seething geopolitical rivalries faded into the backdrop as the international community focused on combating the threat of the coronavirus.Now that much of the world has returned to some semblance of normal, air travel has picked up dramatically from its 2020 lows, according to data from the U.S. Bureau of Transportation Statistics. Also, prior geopolitical rivalries flared up again, which incentivizes military-related spending. Below are the best aerospace and defense stocks to watch out for this year.
Thanks to the intersection of national security interests and the drive for economic competition, the best aerospace and defense stocks historically provide an excellent arena for buy-and-hold investors to grow their portfolios. Unfortunately, the COVID-19 crisis proved that very few sectors could avoid the initial volatility associated with a once-in-a-century pandemic.
Nevertheless, the U.S. and global community came together to manufacture and distribute a vaccine in record time. With a return to normalcy comes economic opportunities, along with a resurgence of old rivalries, both boding cynically well for aerospace and defense stocks.
Overview: Aerospace and Defense Stocks
As one of the most competitive and lucrative market segments, aerospace and defense stocks fundamentally offer investors a double dose of profitability potential. First, the aerospace industry transformed the 20th century, enabling people to travel great distances at unprecedented speed. As we progress along the technological spectrum this century, aerospace firms are aiming even higher. For instance, experts believe that space tourism will become a $1.57 billion industry by 2028.
Second, investors can readily bank on the relevance of the defense component of the aerospace market. No matter how humanity progresses, conflict appears inevitable — and there may be plenty of it. As the world’s sole superpower, the U.S. has a unique responsibility to project power and deter adversarial or belligerent actors from undermining American interests and that of U.S. allies.
Further, because of a transition in power in Washington, D.C., and the stark shift in leadership culture, a few nations appear to be testing the Biden administration. Therefore, it’s possible that defense spending could increase to counteract such high-level shenanigans, which may bode well for aerospace and defense stocks. Additionally, Deloitte reports that U.S. allies such as Japan are beefing up their security profile, potentially providing additional revenue streams for American defense contractors.
Finally, the COVID-19 crisis initially imposed what appeared to be crippling volatility among aerospace and defense stocks. Logically, with billions of people around the world practically forced into quarantine, airplanes sat parked on tarmacs. Not only was that devastating for commercial airliners, the aerospace industry suffered steep losses in product and service revenues. However, with the return of consumers wanting to make up for lost time, this sector could see a revival.
Best Online Brokers for Aerospace and Defense Stocks
Though you may find a few exceptions to the rule, aerospace and defense stocks tend to be well capitalized and deeply established blue-chip names. Given the complex nature of the business, along with its mission-critical profile, the industry features a high barrier to entry. Therefore, you usually don’t have to worry about an upstart competitor ruining your portfolio.
Further, this tough-to-crack market enables you freedom to choose your online broker based on your lifestyle and preferences. With the best aerospace and defense stocks on this list mostly being household names, any brokerage will carry their equity units. To help you decide, below are the best online brokers for the aerospace and defense industry.
Features to Look for in Aerospace and Defense Stocks
- Balanced pipeline: When assessing aerospace and defense stocks, the latter portion invariably draws the most attraction — fighter jets simply offer more pizzazz than commercial jetliners. Nevertheless, the most successful companies in this sector have found a healthy balance between commercial and military applications. This balance may become even more important in the future as defense budgets could find themselves under pressure from fiscal and political headwinds.
- Track record: In the defense industry, no greater honor exists than repeat business. If particular weapons and security systems work well, military and government agencies will continue requesting them. Similarly, if commercial aerospace entities consistently satisfy consumers and clients, they too will provide repeat business. Therefore, when figuring out which aerospace and defense stocks to buy, consider a heavier allocation toward companies that have a strong track record and brand reputation.
- Robust financials: Although robust financials is an attribute investors should consider for any equity sector category, it’s particularly important for aerospace and defense stocks. For one thing, this market subsegment is capital intensive. Second, no one knows for sure how the COVID-19 pandemic will ultimately play out. For example, consumer fears could linger, which may pose challenges on the commercial side. But companies with strong balance sheets can ride out the pain longer than others.
Fly the Friendly (and Unfriendly) Skies for Serious Gains
In many ways, aerospace and defense stocks represent an intriguing contradiction. Invariably, the defense component draws much controversy because of its underlying products’ deadly effectiveness. On the other hand, military innovations have a propensity to improve civilian applications.
From the investor’s point-of-view, aerospace and defense stocks offer a 2-for-1 approach. During bull markets, the aerospace component enjoys substantial demand as people travel around the world. In times of geopolitical tension, the defense angle can hedge an investor’s portfolio against certain risks. Therefore, this sector is always worth consideration.
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View more information: https://www.benzinga.com/money/best-aerospace-defense-stocks/