Five under-the-radar defense stock to buy have the potential to jump as China and Russia increasingly threaten neighboring countries.
The five under-the-radar defense stocks to buy with China and Russia posing growing threats to other nations feature companies that serve key roles but are lesser known than the industry giants. Those five under-the-radar stocks to buy provide components or products to help peace-loving nations deter hawkish leaders in China and Russia who otherwise may see weakness and choose to attack or bully.
Doubters of the potential risk of war do not need to look any further than July 2021 when the Chinese Communist Party (CCP) aired a video in its native language that warned Japan of a nuclear response and “full-scale war” if the island nation interferes in its planned annexation of Taiwan. The video appeared on a channel approved by the CCP and singled out Japan as the one exception to China’s stated policy to not use nuclear weapons against non-nuclear powers.
China’s Threat to Attack Japan May Fuel Five Under-the-Radar Defense Stocks to Buy
“We will use nuclear bombs first,” according to the video. “We will use nuclear bombs continuously. We will do this until Japan declares unconditional surrender for the second time.”
The video later was deleted from the Chinese platform, Xigua, after gaining 2 million views, but copies were uploaded to YouTube and Twitter. The threats of annihilation came two weeks after Japan’s Deputy Prime Minister Taro Aso said his country must “defend Taiwan,” The Japan Times reported.
Japanese political figures expressed support for acquiring nuclear-powered, not nuclear-armed, submarines in the weeks before the country’s Oct. 31 election. When questioned with other candidates in a televised forum, Kono Taro said nuclear-powered submarines would be a “very important” capability for Japan. However, he lost the election to become the country’s next prime minister to Fumio Kishida, of the Liberal Democrats.
Australia’s Prime Minister Scott Morrison announced in October that at least eight nuclear-propelled submarines using American or British technology will be built Down Under to start protecting the country in the late 2030s. The announcement follows increasing rhetoric that warns Australia not to interfere with China’s policies regarding its territorial claim on Taiwan.
Five Under-the-Radar Defense Stocks to Buy Amid Russia’s Military Might
As for Russia, the country recently has been staging military forces along its border with the Ukraine. Although it is possible no political decision to launch a military operation has been made, the recent activity of Russian soldiers goes well beyond normal training.
For example, Russian units from thousands of miles away in the Caucasus have been sent to the border. Those forces could help Russia carry out a new attack against the Ukraine, as it did in 2014 when troops under its direction invaded and annexed the Crimean Peninsula. Those Russian-guided forces also backed a separatist rebellion in Ukraine’s eastern region.
Plus, many Russian military units seem to be moving at night, possibly to avoid scrutiny, unlike previous buildups in March and April. Vladimir Putin’s legacy as Russia’s leader will include him supporting armed gunman from his country infiltrating Ukraine in 2014 to seize land militarily, as well as reportedly using a surface-to-air missile to shoot down a civilian commercial aircraft that led to the deaths of 298 passengers and crew.
Nuclear-Powered Submarine Contractor Leads Five Under-the-Radar Defense Stocks to Buy
BWX Technologies Inc. (NYSE: BWXT), of Lynchburg, Virginia, provides critical components and services to the U.S. Department of Defense (DoD), other government agencies and commercial customers. The company’s clients include the Naval Nuclear Propulsion program that supports submarines that allied governments such as Australia recently chose to add to enhance their national defense.
In addition, BWX Technologies provides a range of nuclear components and services, not only for submarines but for aircraft carriers and other nuclear and non-nuclear research and development (R&D). The company has been manufacturing naval nuclear components and reactors since the 1950s, when it designed and fabricated components for the U.S. Nautilus, the world’s first nuclear-powered submarine.
Since then, U.S. government submarines safely have traversed millions of miles using components built at BWXT facilities. Its reactors power the Navy’s Ohio, Virginia, Seawolf and Los Angeles-class submarines, as well as the Nimitz, commissioned in 1975, and Ford-class aircraft carriers. The USS Gerald R. Ford is not only the U.S. Navy’s newest and largest aircraft carrier but the biggest in the world. The ship, commissioned in July 2017, is the first of the Ford-class carriers, which are more technologically advanced than Nimitz-class carriers.
For comparison, the 10th and final iteration of the Nimitz class is the USS George H.W. Bush, CV-77, commissioned in 2009. It cost roughly $6.2 billion, whereas the USS Gerald R. Ford class vessels were built for nearly double the price at $12.8 billion, with research and development costs adding $4.7 billion. Among its many advantages, the Ford class ships will be able to mount laser self-defense weapons.
BofA Rates BWX Technologies as One of Five Under-the-Radar Defense Stocks to Buy
BofA Global Research gives BWXT a buy rating and price objective of $67. The weighted average enterprise value (EV) / earnings before interest, taxes, depreciation and amortization (EBITDA) multiple on the defense industry prime contractors in BofA’s coverage universe is 13.5x 2022 earnings estimates. BWXT historically trades on average at a 1.1x premium to the prime contractors’ earnings multiple due to its pact with the U.S. Navy, its monopoly on nuclear-powered ships and its diversification effort, according to a BofA.
Key risks to BWX Technologies falling short of that price objective would be a potential loss of U.S. government contracts, as well as changes in contracting terms that could pressure margins and program procurement changes that result in market share loss. The U.S. government is BWXT’s largest customer, accounting for about 90% of the company’s revenues.
The potential to exceed the price target would stem from acquisitions, better-than-expected operating performance and margins, increased demand in the nuclear aftermarket for power plants and higher-than-forecast share in missile tubes for the Virginia-class submarines and Ohio-class submarines, BofA added.
Chart courtesy of www.stockcharts.com
Crane Gains Spot Among Five Under-the-Radar Defense Stocks to Buy
Crane Co. (NYSE: CR), of Stamford, Connecticut, designs and manufactures highly engineered industrial products that feature proprietary and differentiated technology. Its customers are engaged in aerospace and defense, bill validation and counterfeit detection, oil and gas, chemical, pharmaceutical and transportation, among other niches.
BofA placed a buy rating and a $132 price objective on the stock to offer new investors roughly 30% upside potential. Risks to the BofA price objective are a new downturn in commercial aviation and the natural cyclicality of the business. The company also could be materially affected by increased research and development expenses if serious complications arise from new platforms.
Other risks include weakness in chemicals, oil and gas, and power, which could materially affect the outlook for Crane’s Process Flow Technologies unit. Increasing asbestos claims could result in higher settlement or defense costs, thereby affecting CR’s financial results.
Outperformance could include a faster recovery in the company’s end-markets than expected, particularly in commercial aerospace. Plus, acquisitions could provide lift to BofA’s estimates, while better-than-expected execution could boost the company’s earnings power.
Chart courtesy of www.stockcharts.com