Each week, a professional investor tells MoneyWeek where he’d put his money. Tom Bailey, the head of ETF research at HANetf, highlights three defence stocks that look promising.
The world has entered a new period of geopolitical instability. There is a growing list of either active or potential conflicts: Russian aggression in Europe, China and Taiwan, the US and Iran and Israel’s current war with Hamas.
Across the globe, countries are rearming for this more perilous world. In particular, European NATO members are ramping up military spending, reversing the post-Cold War decline in defence budgets.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
1. HANetf’s Future of Defence UCITS ETF
HANetf’s Future of Defence UCITS ETF (LSE: NATO) provides exposure to the companies generating revenue from defence and cyber-defence spending by NATO and its allies.
One example of the NATO ETF’s holdings is BAE Systems (LSE: BA), the largest British defence manufacturer and supplier. This company has played a crucial role in supplying weapons to Ukraine, with a record order intake of £37.1bn in 2022. BAE Systems has also entered agreements with the Ukrainian government to establish a local presence and increase support for Ukraine’s armed forces.
The company is also a key participant in Aukus, a security partnership between Australia, the UK, and the US aimed at countering China’s ambitions in the Indo-Pacific. In October, it received a £3.95bn contract from the UK Ministry of Defence to build a new generation of attack submarines as part of Aukus.
2. Leonardo
Then there is Leonardo (Milan: LDO), an Italian company specialising in aerospace, defence and security. It stands to benefit from European Nato countries’ commitments to increase military spending in line with the Nato target of 2% of GDP.
Given Italy’s preference for domestic products, Leonardo is well-positioned to gain from the government’s increased spending. But Leonardo is a global company, with contracts across Europe, including the UK. At the same time, it has exposure to the growing demand seen by German defence firms, thanks to its 25% stake in German company HENSOLDT. This will also allow Leonardo to benefit from the growing demand for German-manufactured weapons. Germany, after all, is the industrial heartland of Europe, with its manufacturing base playing a key role in the revival of European NATO defence capabilities.
3. Palantir Technologies
Palantir Technologies (NYSE: PLTR) builds digital infrastructure and artificial intelligence (AI) to help clients manage data related to security or financial threats.
It counts among its customers IBM, Amazon, and Airbus. But its technology also has a military application, increasingly demonstrated on the battlefield in Ukraine. In modern warfare, binoculars or physical maps are becoming less important. Instead, armies are using sensors, satellites, and fleets of drones to map out the battlefield.
The reams of data collected need to be filtered to provide intelligence serving as a basis for action. Palantir uses satellites and social media to visualise enemy positions and then employs its algorithms to sift through this data, allowing an army to decide as quickly as possible where to deploy resources.
Ukraine’s military has been a big user of Palantir. The company’s CEO, Alex Karp, was the first global business leader to meet Ukrainian president Volodymyr Zelensky following the February 2022 invasion.
This article was first published in MoneyWeek's magazine. Enjoy exclusive early access to news, opinion and analysis from our team of financial experts with a MoneyWeek subscription.
Related articles
- 5 defence stocks to arm your portfolio
- Invest in defence stocks as war goes hi-tech
- Why the West must invest in defence - and you should too
- What are exchange traded funds (ETFs)?
-
8 of the best houses for sale for around £500,000Some of the best houses for sale for around £500,000 – from a 19th-century stone farm cottage in North Yorkshire and a two-bedroom apartment in Edinburgh’s New Town to a converted Methodist chapel in Norfolk
-
What will the unravelling of US-China trade mean for the economy?What will a US-China decoupling mean for the global economy?
-
Two ways to tap into monopoly profits from airportsMost investors can’t get their hands on airports. Here are two ways you can
-
Fat profits: should you invest in weight-loss drugs?The latest weight-loss treatments could transform public health and the world economy. Should you invest?
-
How investors could profit from Ramsden Holdings' four-part growth strategyRamsdens Holdings offers a diversified set of financial and retail services and a juicy yield, says Dr Michael Tubbs
-
How to invest in the booming insurance marketThe insurance sector is experiencing rapid growth after years of stagnation. Smart investors should buy in now, says Rupert Hargreaves
-
Out of America's shadow: Why Trump's tariff chaos may be good for non-US stocksOpinion Upending global investment and trade could benefit other countries at the expense of the US market, says Cris Sholto Heaton
-
BP's 'long, painful decline' – and why next year could be even tougherOpinion Long-suffering shareholders in oil giant BP have been pushing for change. It won’t come soon enough, says Matthew Lynn
-
Investment trusts tap the profits in exotic and obscure global marketsOpinion Peter Walls, manager of the Unicorn Mastertrust fund, highlights three investment trusts as he shares where he'd put his money
-
Falling revenues and mounting debt spell trouble for Jumia TechnologiesStruggling African e-commerce platform Jumia Technologies looks headed for the exit, says Dr Matthew Partridge.
