The defense industry produces modern weaponry, including combat vehicles, ships, bombers, and fighter jets. Companies in the industry also offer cybersecurity, information technology (IT), analytics, robotics, and intelligence systems. Its primary customer is the U.S. government, but it also sells its products and services to foreign governments and law enforcement agencies. Russia’s ongoing invasion of Ukraine beginning in February gave a huge initial boost to the performance of selected large defense stocks, including Lockheed Martin Corp., Northrop Grumman Corp., and Raytheon Technologies Corp. While they continue perform relatively well, the plunging broader market has reined in these stocks in recent months.

The Invesco Aerospace & Defense ETF (PPA) holds a broad range of stocks, including some from companies that are not pure play defense companies, such as those involved in civilian aerospace manufacturing. However, it is the closest proxy available for the broader defense industry. PPA has outperformed compared to the broader market with a total return of -9.7% over the last 12 months compared to the benchmark Russell 1000 Index’s total return of -17.0%.

Here are the top three defense stocks with the best value, the fastest growth, and the most momentum. The performance figures above and all statistics in the tables below are as of Sept. 29, 2022.

These are the defense stocks with the lowest 12-month trailing price-to-earnings (P/E) ratio. Because profits can be returned to shareholders in the form of dividends and buybacks, a low P/E ratio shows that you’re paying less for each dollar of profit generated.

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• Northrop Grumman Corp.: Northrop Grumman is a global security company that provides services and security systems to clients in the aerospace, information systems, and electronics industries, among others. Its products include manned and unmanned aircraft, as well electronic warfare systems. In late September, Northrop Grumman announced that it and the U.S. Air Force will unveil the B-21 Raider at its Palmdale, Calif., facility during the first week of December. The company described the B-21 as the “most advanced military aircraft ever built.” The company currently has six B-21 test aircraft in the final assembly stage and the first flight is planned for 2023.
• Huntington Ingalls Industries Inc.: Huntington Ingalls is a shipbuilding company that designs, builds, and maintains nuclear and non-nuclear ships for the U.S. Navy and Coast Guard. It also provides ship repair and maintenance services. On Sept. 26, Huntington announced that Todd Borkey was appointed executive vice president and chief technology officer. Borkey will oversee the company’s overall technology strategy and research and development. Borkey was previously chief technology officer of Huntington’s Mission Technologies division.
• BAE Systems PLC: BAE Systems is a British defense contractor that manufactures military aircraft, guided weapons systems, naval ships and submarines for governments around the world.

These are the top defense stocks as ranked by a growth model that scores companies based on a 50/50 weighting of their most recent quarterly year-over-year (YOY) percentage revenue growth and most recent quarterly YOY earnings-per-share (EPS) growth. Both sales and earnings are critical factors in the success of a company. Therefore, ranking companies by only one growth metric makes a ranking susceptible to the accounting anomalies of that quarter (such as changes in tax law or restructuring costs) that may make one figure or the other unrepresentative of the business in general. Companies with quarterly EPS or revenue growth of more than 2,500% were excluded as outliers.

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• Parsons Corp.: Parsons is a national security and critical infrastructure company. It provides services including cybersecurity, missile defense, transportation, and environmental remediation services. Parsons also offers waste and wastewater treatment services. Parsons reported Q2 2022 earnings on Aug. 3, with net income nearly tripling year-over-year (YOY) on rising revenue. The company said key drivers of performance were a jump in contract awards and contributions from acquisitions.
• Huntington Ingalls Industries Inc.: See company description above.
• Heico Corp.: Heico designs, produces, and services products and components for a variety of industries, including aviation, defense, space, and telecommunications, among others. Its customers include airline companies, defense and space contractors, the Federal Aviation Administration, and military agencies. On Aug. 29, Heico reported financial results for Q3 FY 2022 ended July 31. Net income attributable to the company climbed 7.3% YOY as sales reached a record. Heico attributed the growth in part to a strong rebound in demand for its commercial aerospace products and services.

These are the defense stocks that had the highest total return over the last 12 months.

^{Source: YCharts}

• Northrop Grumman Corp.: See company description above.
• BAE Systems PLC: See company description above.
• Huntington Ingalls Industries Inc.: See company description above.

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