Defense stocks jump alongside as Germany increases spending – The Average Joe


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    Defense stocks jump alongside as Germany increases spending


    March 1, 2022


    Defense stocks are rising with the news of tragic events — with Germany leading the charge.

    What’s the big deal? Yesterday, Germany announced plans to spend over ~$111B (>2% of Germany’s annual GDP) to modernize its armed forces.

    • The SPDR S&P Aerospace and Defense ETF (NYSE:XAR) — a basket of US aerospace and defense companies jumped 5% — not as much as Europe’s largest defense stocks.
    • Industry experts expect greater spending overall as more troops are deployed to surrounding NATO countries (via FT).

    One analyst expects NATO countries to raise military spending by ~11%.

    Changing stance: Germany has an arms policy that bans weapon sales to conflict areas — but pressure from allies overturned this.

    As a result, other countries can send German weapons to Ukraine — Germany even offering to supply Ukraine with missiles, weapons and vehicles.

    US defense stocks were boosted by the Pentagon on Monday — which granted $1.8B to three companies to build out its military satellite:

    • The trio: Lockheed Martin (NYSE:LMT), Northrop Grumman (NYSE:NOC) and private-company YorkSpace.
    • While European defense stocks become more competitive — US defense contractors could benefit, according to JPMorgan analyst Seth Seifman (via Reuters).

    But not all analysts are biting. Rob Stallard of Vertical Research Partners doesn’t expect a change in the US’ defense spending.

    Out of favor: Defense stocks have been criticized in recent years for ESG issues — with mandates keeping some institutional investors away from weapon stocks — but the crisis could change this.

    The defense sector is already up over 11% since the invasion started — which could lead to a “buy the rumor, sell the news” mentality.

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