Why should investors be cautious chasing defense stocks – The Average Joe
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    Why should investors be cautious chasing defense stocks


    April 20, 2022


    Last week, the Pentagon met with Lockheed Martin (NYSE:LMT), Raytheon Technologies (NYSE:RTX), and Boeing (NYSE:BA), among others, to discuss Ukraine-related weapons production.

    The meeting comes as Biden announced more military aid for Ukraine:

    • Last week, Biden announced $800M in military aid for Ukraine — including weapons and ammunition.
    • Tuesday’s NBC report expects the release of another similar-sized package in the coming days.

    Trend chasers beware: Since the invasion began, the SPDR S&P Aerospace & Defense ETF (NYSE:XAR) is up 14% — with the S&P 500 up 5.5% in the same period.

    But according to WSJ — investors should be cautious with chasing the trend. Defense stocks jumped on past military conflicts,but fell as “the initial sense of danger dissipated.”

    • During 9/11, global defense stocks peaked at 48% — 204 days after the initial event — just to lose all their gains 187 days later.
    • Similar moves were seen during the North Korean nuclear crisis (2017-2018) and the Russian invasion of Georgia (2008).

    Same issues, different industries: Like other sectors, defense companies are also being impacted by supply chain issues:

    • Since reporting earnings on Tuesday, the world’s largest defense company — Lockheed Martin (NYSE:LMT) is down nearly 4% — with sales falling 8%.
    • Lockheed blamed missing estimates on supply-chain shortages and COVID constraints — and doesn’t expect the war to have immediate positive impacts on its financials.

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