We use cookies to understand how you use our site and to improve your experience.
This includes personalizing content and advertising.
By pressing "Accept All" or closing out of this banner, you consent to the use of all cookies and similar technologies and the sharing of information they collect with third parties.
You can reject marketing cookies by pressing "Deny Optional," but we still use essential, performance, and functional cookies.
In addition, whether you "Accept All," Deny Optional," click the X or otherwise continue to use the site, you accept our Privacy Policy and Terms of Service, revised from time to time.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
Defense ETFs to Buy as Pentagon Pushes to Boost Missile Stockpiles
Read MoreHide Full Article
Key Takeaways
Lockheed Martin, RTX and other defense majors face a major missile production push from the Pentagon.
Patriot stocks have fallen about 65%, while THAAD inventories have dropped at least 38%.
ETFs like ITA offer diversified exposure to defense companies poised to benefit from higher orders.
The Pentagon is currently pressing the U.S. defense contractors to accelerate weapon production dramatically. In a recent memo, deputy defense secretary Steve Feinberg gave major contractors just 21 days to submit plans for "significantly faster, more aggressive delivery schedules and/or increased production for critical capabilities" (as cited in CNBC).
This directive comes in the face of the U.S. military witnessing critical shortages in its munition stockpiles, with some key missile inventories depleted by over 65% following five months of war with Iran.
For investors, this confluence of urgent demand and mandated production increases creates a potentially lucrative entry point into the defense sector, particularly through diversified defense exchange-traded funds (ETFs) that offer broad exposure to the military contractors poised to benefit most from this massive replenishment cycle.
But before we highlight those fund names, investors may first want to assess the severity of the munitions depletion challenge and the extent to which the Pentagon’s production push could benefit defense contractors and, by extension, the funds that hold them.
The Depletion Crisis & Pentagon’s Stance
Empirically, U.S. weapons stockpiles, particularly missiles, have been critically depleted by the combination of sustained combat operations and prior commitments. According to a comprehensive analysis by the Center for Strategic and International Studies (“CSIS”), the war with Iran has consumed a staggering quantity of America's most advanced missile interceptors.
The pre-war inventory of Patriot interceptors, which stood at 2,330, has plummeted to an estimated 759-827 missiles, marking a reduction of approximately 65%. Similarly, THAAD interceptor stocks have fallen from 452 to just 234-278 units, a decline of at least 38%.
While the Iran conflict has become the primary source of pressure on U.S. missile inventories, current stockpile depletion has also been compounded by years of military aid to Ukraine, including the transfer of roughly 600 Patriot interceptors to help defend against Russian attacks.
To this end, the CSIS has warned that replenishing reserves for these critical weapons could take more than three years, creating a significant "window of vulnerability" if another major conflict were to erupt, particularly with China. Notably, CSIS estimates replenishment of stockpiles will take approximately 42 months for PAC-3 MSE interceptors and up to 53 months for THAAD systems.
This growing gap between supply availability and operational demand must have forced the Pentagon to aggressively push for a strong ramp-up in weapon production.
Benefits for Defense Majors & ETFs
The Pentagon's recent push for accelerated production translates directly into massive revenue growth opportunities for defense companies like Lockheed Martin (LMT - Free Report) , RTX Corp (RTX - Free Report) , Boeing (BA - Free Report) and General Dynamics (GD - Free Report) , which are the primary contractors for the missiles that suffered a depleted stockpile.
Lockheed, for instance, recently received a contract worth up to $58.6 billion to produce Patriot Advanced Capability-3 (PAC-3) MSE interceptors through fiscal 2032, while the Pentagon is working to triple Patriot production capacity and quadruple that for THAAD systems. RTX, which manufactures the Patriot system, and Lockheed Martin, which produces the PAC-3 interceptor, the latest version of the Patriot missile, are positioned to benefit substantially from these increased orders.
The accelerated procurement targets also include advanced radar systems from both companies, such as RTX's naval AN/SPY-6 and
Lockheed's land-based AN/TPY-6, ensuring sustained demand across multiple product lines.
The production surge extends to Boeing and General Dynamics, as the Pentagon seeks faster delivery of programs like the T-7A Red Hawk training aircraft and TAO-205 naval vessels.
As these production push served via multi-year defense contracts, they translate into strong backlogs and revenue expansion for the aforementioned defense stocks and ETFs holding them.
Defense ETFs to Buy
Considering the aforementioned discussion, this might be an ideal time for prudent investors to add the following ETFs to their portfolios to capture the upcoming rally in the defense industry without getting exposed to individual stock risk.
iShares U.S. Aerospace & Defense ETF (ITA - Free Report)
This fund, with net assets worth $15.07 billion, offers exposure to 49 U.S. aerospace and defense companies, including manufacturers of commercial and military aircraft. GE Aerospace holds the first spot in this fund, with 21.44% weightage, while RTX holds the second spot with 16.92% weightage. BA holds the third spot in this fund, with 9.25% weightage, while GD holds the fourth spot with 4.68% weightage. LMT holds the fifth spot in this ETF, with 4.63% weightage.
ITA has gained 17.3% year-to-date and charges 37 basis points (bps) in fees. It traded at a volume of 0.37 million shares in the last trading session and holds a Zacks ETF Rank #2 (Buy).
This fund, with a market value of $8.74 billion, offers exposure to 62 companies involved in the development, manufacturing, operations and support of U.S. defense, homeland security and aerospace operations. RTX holds the first spot in this fund, with 8.20% weightage, while BA holds the second spot with 7.01% weightage. LMT holds the fourth spot in this fund, with 6.52% weightage, while GD holds the fifth spot with 4.86% weightage.
PPA has rallied 17.5% year-to-date and charges 58 bps in fees. It traded at a volume of 0.12 million shares in the last trading session and holds a Zacks ETF Rank #2.
State Street SPDR S&P Aerospace & Defense ETF (XAR - Free Report)
This fund, with assets under management (AUM) worth $6.62 billion, offers exposure to 47 aerospace and defense companies. Karman Holdings holds the first spot in this fund, with 3.44% weightage, while RTX holds the fourth spot with 3.20% weightage. GD holds the seventh spot in this fund with 2.94% weightage, while LMT holds the eighth spot with 2.91% weightage.
XAR has soared 21.2% year-to-date and charges 35 bps in fees. It traded at a volume of 0.11 million shares in the last trading session and holds a Zacks ETF Rank #2.
View the Zacks #1 Rank List
Image: Bigstock
Defense ETFs to Buy as Pentagon Pushes to Boost Missile Stockpiles
Key Takeaways
The Pentagon is currently pressing the U.S. defense contractors to accelerate weapon production dramatically. In a recent memo, deputy defense secretary Steve Feinberg gave major contractors just 21 days to submit plans for "significantly faster, more aggressive delivery schedules and/or increased production for critical capabilities" (as cited in CNBC).
This directive comes in the face of the U.S. military witnessing critical shortages in its munition stockpiles, with some key missile inventories depleted by over 65% following five months of war with Iran.
For investors, this confluence of urgent demand and mandated production increases creates a potentially lucrative entry point into the defense sector, particularly through diversified defense exchange-traded funds (ETFs) that offer broad exposure to the military contractors poised to benefit most from this massive replenishment cycle.
But before we highlight those fund names, investors may first want to assess the severity of the munitions depletion challenge and the extent to which the Pentagon’s production push could benefit defense contractors and, by extension, the funds that hold them.
The Depletion Crisis & Pentagon’s Stance
Empirically, U.S. weapons stockpiles, particularly missiles, have been critically depleted by the combination of sustained combat operations and prior commitments. According to a comprehensive analysis by the Center for Strategic and International Studies (“CSIS”), the war with Iran has consumed a staggering quantity of America's most advanced missile interceptors.
The pre-war inventory of Patriot interceptors, which stood at 2,330, has plummeted to an estimated 759-827 missiles, marking a reduction of approximately 65%. Similarly, THAAD interceptor stocks have fallen from 452 to just 234-278 units, a decline of at least 38%.
While the Iran conflict has become the primary source of pressure on U.S. missile inventories, current stockpile depletion has also been compounded by years of military aid to Ukraine, including the transfer of roughly 600 Patriot interceptors to help defend against Russian attacks.
To this end, the CSIS has warned that replenishing reserves for these critical weapons could take more than three years, creating a significant "window of vulnerability" if another major conflict were to erupt, particularly with China. Notably, CSIS estimates replenishment of stockpiles will take approximately 42 months for PAC-3 MSE interceptors and up to 53 months for THAAD systems.
This growing gap between supply availability and operational demand must have forced the Pentagon to aggressively push for a strong ramp-up in weapon production.
Benefits for Defense Majors & ETFs
The Pentagon's recent push for accelerated production translates directly into massive revenue growth opportunities for defense companies like Lockheed Martin (LMT - Free Report) , RTX Corp (RTX - Free Report) , Boeing (BA - Free Report) and General Dynamics (GD - Free Report) , which are the primary contractors for the missiles that suffered a depleted stockpile.
Lockheed, for instance, recently received a contract worth up to $58.6 billion to produce Patriot Advanced Capability-3 (PAC-3) MSE interceptors through fiscal 2032, while the Pentagon is working to triple Patriot production capacity and quadruple that for THAAD systems. RTX, which manufactures the Patriot system, and Lockheed Martin, which produces the PAC-3 interceptor, the latest version of the Patriot missile, are positioned to benefit substantially from these increased orders.
The accelerated procurement targets also include advanced radar systems from both companies, such as RTX's naval AN/SPY-6 and
Lockheed's land-based AN/TPY-6, ensuring sustained demand across multiple product lines.
The production surge extends to Boeing and General Dynamics, as the Pentagon seeks faster delivery of programs like the T-7A Red Hawk training aircraft and TAO-205 naval vessels.
As these production push served via multi-year defense contracts, they translate into strong backlogs and revenue expansion for the aforementioned defense stocks and ETFs holding them.
Defense ETFs to Buy
Considering the aforementioned discussion, this might be an ideal time for prudent investors to add the following ETFs to their portfolios to capture the upcoming rally in the defense industry without getting exposed to individual stock risk.
iShares U.S. Aerospace & Defense ETF (ITA - Free Report)
This fund, with net assets worth $15.07 billion, offers exposure to 49 U.S. aerospace and defense companies, including manufacturers of commercial and military aircraft. GE Aerospace holds the first spot in this fund, with 21.44% weightage, while RTX holds the second spot with 16.92% weightage. BA holds the third spot in this fund, with 9.25% weightage, while GD holds the fourth spot with 4.68% weightage. LMT holds the fifth spot in this ETF, with 4.63% weightage.
ITA has gained 17.3% year-to-date and charges 37 basis points (bps) in fees. It traded at a volume of 0.37 million shares in the last trading session and holds a Zacks ETF Rank #2 (Buy).
Invesco Aerospace & Defense ETF (PPA - Free Report)
This fund, with a market value of $8.74 billion, offers exposure to 62 companies involved in the development, manufacturing, operations and support of U.S. defense, homeland security and aerospace operations. RTX holds the first spot in this fund, with 8.20% weightage, while BA holds the second spot with 7.01% weightage. LMT holds the fourth spot in this fund, with 6.52% weightage, while GD holds the fifth spot with 4.86% weightage.
PPA has rallied 17.5% year-to-date and charges 58 bps in fees. It traded at a volume of 0.12 million shares in the last trading session and holds a Zacks ETF Rank #2.
State Street SPDR S&P Aerospace & Defense ETF (XAR - Free Report)
This fund, with assets under management (AUM) worth $6.62 billion, offers exposure to 47 aerospace and defense companies. Karman Holdings holds the first spot in this fund, with 3.44% weightage, while RTX holds the fourth spot with 3.20% weightage. GD holds the seventh spot in this fund with 2.94% weightage, while LMT holds the eighth spot with 2.91% weightage.
XAR has soared 21.2% year-to-date and charges 35 bps in fees. It traded at a volume of 0.11 million shares in the last trading session and holds a Zacks ETF Rank #2.