Defense Index Funds?

[jnw]

What do you think about currently investing in particular defense stocks or indexes?  I wonder if they are likely to go up over the next years, higher than they normally would.

[JAYSLOL]

They might, or they might not.  I don’t like shuffling my asset allocation around based on the news. 

[ChpBstrd]

I've always liked Raythen (RTX), maker of the Javelin anti-armor missile that has reportedly killed 280 Russian vehicles in 300 shots, and the Stinger anti-aircraft missile that has so far denied Russia full control of Ukrainian airspace. I think the Ukraine war is proving that soldier-fired missiles are the future. Slow, lumbering, and expensive artillery pieces / battleships / bombers are becoming less important. The implications for RTX and modern warfare are huge.

https://www.ndtv.com/world-news/how-small-ukraine-force-is-killing-russian-tanks-with-us-javelin-missiles-2803289

Unfortunately RTX is priced like a tech stock right now, with a PE around 36. In all fairness, it's probably reasonable to consider them a tech stock given the sophistication of their products. Consider writing puts on RTX. You can make about 11% by agreeing to buy RTX next January at today's price, or about 6% by August if you prefer. Not a bad deal when you consider the odds of a new cold war and push for military modernization in NATO countries.

Best of all, their current off-the-shelf, in-production-for-many-years products are showing their worth against one of the world's best militaries. They don't necessarily have to pour R&D money into new products for the next few years, like Apple does for example, because nobody has come up with an effective countermeasure to their missiles other than lots of infantry on foot. RTX can just run their production lines at full speed while charging premium prices for the upcoming wave of contracts. Best of all, they'll make money whether things blow over or get bad - how many stocks can say that!?

[MustacheAndaHalf]

What do you think of Ratheon Technologies (RTX) long term stock performance?  Like they have 6.4% annual returns for the past 15 years, compared to the defense industry average of 9.7%.

The stock's total return was 28.1% in the past 12 months ... but a total of 28.4% over the past 5 years (5.12%/year).  It seems like RTX has gained 0.3% for 4 years, then 28.1% in one year?

[MustacheAndaHalf]

iShares U.S. Aerospace & Defense ETF (ITA) took a steep drop during the pandemic, so I did buy into a leveraged version of it to wait for a recovery.  But that recovery has already happened.

Germany has increased it's defense budget +50%, and I'm sure other European companies will also be increasing defense spending.  I would assume that information is priced into defense stocks.

I bought a small position in Boeing (BA) in mid 2021.  I believe their commercial airline production will recover, but I also bought because they have defense contracts to fall back on.

[scottish]

Hopefully military equipment manufacturers are *not* going to turn into a big growth sector.   Just saying...

[ChpBstrd]

What do you think of Ratheon Technologies (RTX) long term stock performance?  Like they have 6.4% annual returns for the past 15 years, compared to the defense industry average of 9.7%.

The stock's total return was 28.1% in the past 12 months ... but a total of 28.4% over the past 5 years (5.12%/year).  It seems like RTX has gained 0.3% for 4 years, then 28.1% in one year?

Here's what someone more knowledgeable than me thinks, and this may explain the past several years of flat revenue and inconsistent earnings:

Production cuts have been substantial over the past decade: between FY 1999 and FY 2001, the U.S. procured some 9,848 Javelins, while, in the most recent three-year period (between FY 2020 and FY 2022), missile procurement shrank to a total of 2,037.

Bottom line: The U.S. military has been battling insurgents with no armor or air power for the last 20 years, and missile program spending has been left behind. The events of early 2022 and the ensuing cold war will lead to a pivot in the opposite direction. European pacifism can no longer be taken for granted either.

There is a real chance that Russia and NATO could fight a ground war (e.g. over the Baltic states, Moldova, or Hungary) that does not escalate into a nuclear war because of the mutually assured destruction principle.

[PDXTabs]

I've always liked Raythen (RTX), maker of the Javelin anti-armor missile that has reportedly killed 280 Russian vehicles in 300 shots, and the Stinger anti-aircraft missile that has so far denied Russia full control of Ukrainian airspace. I think the Ukraine war is proving that soldier-fired missiles are the future. Slow, lumbering, and expensive artillery pieces / battleships / bombers are becoming less important. The implications for RTX and modern warfare are huge.

I half agree, but the shoulder fired anti-aircraft missiles are easily evaded by fixed wing aircraft by flying heigh enough to be out of range. Russia just isn't doing this because they either can't or won't use precision guided munitions.

Hopefully military equipment manufacturers are *not* going to turn into a big growth sector.   Just saying...

Europe is ramping up defense spending whether you like it or not. But that may all be priced in.

[ChpBstrd]

Hopefully military equipment manufacturers are *not* going to turn into a big growth sector.   Just saying...

Europe is ramping up defense spending whether you like it or not. But that may all be priced in.

And I don't think that's necessarily a bad thing. The scenario of a dictator marching across Europe, conquering and plundering one small, weak country at a time has been happening over and over again since ancient times. Alexander, Ceasar, Attila, Genghis Khan, Napoleon, Hitler, Stalin... The enabling factor has always been disunity among the small, weak states. To the extent the EU and NATO function as unity-boosting organizational layers, they prevent the dynamic from happening yet again. It has worked like a charm for the past 70 years, which has not-even-arguably been the most peaceful period in the continent's recorded history. The problem of states shirking their responsibility for the collective defense is an element of disunity which increases the odds of the next dictator rolling across borders.

[MustacheAndaHalf]

What do you think of Ratheon Technologies (RTX) long term stock performance?  [

Bottom line: The U.S. military has been battling insurgents with no armor or air power for the last 20 years, and missile program spending has been left behind. The events of early 2022 and the ensuing cold war will lead to a pivot in the opposite direction. European pacifism can no longer be taken for granted either.

There is a real chance that Russia and NATO could fight a ground war (e.g. over the Baltic states, Moldova, or Hungary) that does not escalate into a nuclear war because of the mutually assured destruction principle.

I agree the U.S. will ramp up spending, and some countries in Europe will do the same.  But I'm cynical about Germany's approach to Russia.  Russia attacked Georgia to change it's government... couple years later, Nord Stream 1 was started from Russia to Germany.  Russia takes over Crimea ... several years later Nord Stream 2 is started.  So yes, maybe Germany thinks Russia is now a threat, and plans to wean itself from Russian oil & gas ... but they sure have a poor track record.

It must suck to be a non-NATO country with Russian separatists in the eastern region... except I'm actually talking about Moldova.  The people there know they're next, and they're not in NATO, either.
https://en.wikipedia.org/wiki/Moldova%E2%80%93NATO_relations