Geopolitical turmoil continues unabated. There is no end in sight for the conflict raging in Gaza, and similar can be said about the Russia-Ukraine war. Unfortunate though true, a world embroiled in various clashes does create an opportunity to invest in defense stocks. The companies behind these “Defense” stocks sell weapons, defense systems, armored vehicles and drones to the U.S. government as well as its allies.
The iShares U.S. Aerospace & Defense ETF (NYSEBATS:ITA), for example, is a $6.1 billion exchange-traded fund that has investments in 39 different. public aerospace firms and defense contracts. The ETF has seen a resurgence since early October last year and is up more than 22% since then.
Of course, not all defense firms are a sure bet these days. Below are 3 clear defense stocks that investors should sell before their share prices crash and burn.
Boeing (BA)
The plane-maker and defense contractor Boeing (NYSE:BA) cannot seem to stay out of major headlines. In January, an Alaska Airlines Boeing 737-MAX-9 plane suffered an emergency door blowout that catapulted a series of investigations into the plane-maker’s manufacturing quality and scale capabilities. Shortly after the incident, the U.S. Federal Aviation Administration (FAA) started a high-profile investigation. And on the FAA’s website, they have written, “[the agency] has halted production expansion of the Boeing 737 MAX, is exploring the use of a third party to conduct independent reviews of quality systems.” Similarly, in early May, the FAA has also began a probe into the production quality of Boeing’s long-haul 787 Dreamliner jets. A model type that Boeing employees have been accused of falsifying safety documents.
Most recently, the U.S Justice Department has offered a plea deal to the company for its role in the 2018 and 2019 737-MAX crashes, after the plane-maker had originally received a deferred prosecution agreement that had temporarily shielded it from criminal charges.
Boeing’s share price has been amongst the worst performers in the industrial sector. The plane-maker’s share price has plummeted more than 30% since the start of the year. Ongoing investigations, a potential criminal prosecution and further finding of criminal negligence could send shares plummeting even more.
Archer Aviation (ACHR)
Archer Aviation (NYSE:ACHR) is an electric vertical take-off and landing (eVTOL) manufacturer. eVTOL vehicles will be an interesting space within the urban transportation sector that investors should watch out for with enthusiasm. The idea is to provide travelers with an alternative, futuristic way in which to travel about a large urban dwelling. Most recently, the FAA has awarded Archer Aviation’s “Midnight” eVTOL with a significant certificate that will allow it to fly commercially. This was after two long years of filing various documents. Archer Aviation’s Midnight is a four-passenger aircraft with a range of 100 miles.
However, Archer Aviation’s stock price has been disappointing. Shares have fallen 42.7% on a year-to-date basis. While Archer does have a partnership with United Airlines (NASDAQ:UAL), which has ordered several of Archer’s eVTOL aircrafts, there is a lot of competition in the space, from Joby Aviation (NYSE:JOBY), for example, and a lack of a pathway to profitability could keep shares trending downward.
Mercury Systems (MRCY)
Mercury Systems (NASDAQ:MRCY) is the final defense company to make this sell-list. In short, the firm manufactures and sells components, products, modules and subsystems to various companies within the defense and aerospace industry. Moreover, Mercury offers a variety of semiconductor components, including transceivers, switches and amplifiers as well as integrated circuit chips that compose different military technologies.
Unfortunately, Mercury has also suffered from a plummeting stock price and declining earnings. In particular, MRCY shares fell 26.2% for the year as of the end of trading last Friday. At the end of 2023, Mercury management had seen its revenue and earnings decline for its Q2 2024 results due to elevated program and manufacturing costs. Furthermore, Mercury missed Wall Street estimates in their Q3 2024 earnings report.
More dreadful earnings seasons could send MRCY shares plummeting even more than it has currently, which should signal to current investors that MRCY is one of the defense stocks they will want to sell while they still can.
On the date of publication, Tyrik Torres did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor did not have (either directly or
indirectly) any positions in the securities mentioned in this article.