3 Defense Stocks to Consider for June

Here are your options when it comes to U.S. defence contractors, along with my ETF recommendation

If you have ethical reservations about investing in the defence sector, this article may not be for you. However, if you’re open to exploring this area, defence stocks are particularly noteworthy this year.

Given the ongoing geopolitical tensions – over two years of war in Ukraine, the persistent conflict between Israel and Gaza, and substantial U.S. military funding – it’s no surprise that defence is a robust sector.

The performance of defence stocks during times of global unrest is well-documented. Here are a few studies that illustrate this point:

  1. “The Budgets of Wars: Analysis of the U.S. Defense Stocks in the Post-Cold War Era”
  2. “The 11/13 Paris Terrorist Attacks and Stock Prices: The Case of the International Defense Industry”
  3. “Does Geopolitical Risk Predict Stock Returns and Volatility of Leading Defense Companies? Evidence from a Nonparametric Approach”

For those new to this sector, the following overview will introduce you to the three biggest U.S. defence contractors, including what weaponry they produce that is being used in conflicts today.

Additionally, I will highlight an exchange-traded fund (ETF) pick that provides exposure to the entire industry, offering a comprehensive way to invest in defence with a single purchase.

RTX

RTX Corporation (NYSE:RTX), formerly known as Raytheon Technologies, is a major defence contractor known for its extensive range of military technology and equipment.

Among its well-known products are the Patriot air defence system and Tomahawk cruise missile, both of which are staples in modern military arsenals.

RTX also produces the Advanced Medium-Range Air-to-Air Missile (AMRAAM), Paveway laser-guided bombs, and a variety of radar systems for surveillance and missile defence.

Lockheed Martin

Lockheed Martin (NYSE:LMT) produces the F-35 Lightning II, the most sophisticated stealth fighter jet currently in use, capable of multiple combat roles.

Lockheed Martin also manufactures the C-130 Hercules, a versatile military transport aircraft, and the PAC-3 Missile, essential for modern missile defence systems.

Additionally, Lockheed produces the AGM-114 Hellfire, a precision-guided missile used by a variety of ground and air platforms for anti-armour and precision strike missions.

General Dynamics

General Dynamics (NYSE:GD) is known for the Virginia-class submarines, which are highly advanced nuclear-powered submarines designed for deep-sea and anti-submarine warfare.

General Dynamics also produces the M1 Abrams tank, the main battle tank used by the United States military, renowned for its powerful armament, mobility, and heavy armour.

Additionally, the company manufactures the Stryker, a family of armoured fighting vehicles that offer significant versatility and mobility for infantry troops in various combat scenarios

The ETF I would buy

Investing directly in U.S. defence companies involves dealing with USD transactions, which can lead to costly currency conversion fees.

Additionally, investing in just these three stocks does not provide broad diversification, which is crucial for managing investment risk.

My recommendation for those looking to invest in this sector would be the iShares U.S. Aerospace & Defense Index ETF (TSX:XAD), which charges a 0.44% management expense ratio.

This ETF not only includes RTX, Lockheed Martin, and General Dynamics, but it also comprises 31 other companies within the aerospace and defence sector by tracking the Dow Jones U.S. Select Aerospace & Defense Index.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Tony Dong has no position in any of the stocks mentioned. The Motley Fool recommends Lockheed Martin and RTX. The Motley Fool has a disclosure policy.

More on Investing

A data center engineer works on a laptop at a server farm.
Tech Stocks

3 No-Brainer Data Centre Stocks to Buy With $500 Right Now

Data centres are going to be a huge growth opportunity in the next decade. And these are the top buys.

Read more »

Paper Canadian currency of various denominations
Bank Stocks

1 Magnificent Canadian Dividend Stock Down 28% to Buy and Hold for Decades

This top Canadian dividend stock is underperforming its large peers this year, but a turnaround could be on the horizon.

Read more »

TFSA (Tax-Free Savings Account) on wooden blocks and Canadian one hundred dollar bills.
Dividend Stocks

Where to Invest Your $7,000 TFSA Contribution

The TFSA is attractive for investors who want to generate tax-free passive income.

Read more »

The TFSA is a powerful savings vehicle for Canadians who are saving for retirement.
Dividend Stocks

TFSA Investors: 3 Dividend Stocks Worth Holding Forever

These TSX stocks have the potential to grow their dividends over the next decade, making them top investments for TFSA…

Read more »

hand stacks coins
Investing

Secure a Wealthy Future With These 3 Canadian Stocks

These Canadian stocks have the potential to appreciate substantially over time and may also enhance returns through dividend payments.

Read more »

Tractor spraying a field of wheat
Dividend Stocks

Is Nutrien Stock a Buy for its Dividend Yield?

Nutrien is down more than 50% form the 2022 highs. Is NTR stock now oversold?

Read more »

analyze data
Investing

3 Blue-Chip Stocks Every Canadian Should Own

These blue-chip stocks are backed by large-cap companies with well-established businesses, solid fundamentals, and a growing earnings base.

Read more »

dividends grow over time
Stocks for Beginners

The Smartest Growth Stock to Buy With $2,000 Right Now

Do you have $2,000 to invest for the long term? These three TSX stocks have and will continue to deliver…

Read more »