Al Root

Defense stocks rallied early Wednesday, offering some relief for battered investors. President Donald Trump and a Wall Street call saying shares had been beaten down enough helped.

Coming into Wednesday, shares of Lockheed Martin, Northrop Grumman, General Dynamics, and L3Harris Technologies were down about 15% on average since the Nov. 5 election.

Boeing and RTX are also large defense contractors. Their shares have risen since the election, but both stocks tend to trade based on their commercial-aerospace business outlooks. Shares of smaller-capitalization defense contractors Huntington-Ingalls Industries and AeroVironment were down about 11% and 35%, respectively, since Nov. 5.

Investors have worried that President Trump's push for efficiency, his wavering support for Ukraine, and his desire to see Europe pay more for its defense could mean less military spending in the U.S.

It's a nervous time for the sector. It's also "time to buy," wrote Citi analyst Jason Gursky in a Wednesday report.

Among reasons cited were President Trump's Tuesday address to Congress. The president wants to pursue a missile defense dome over the U.S. That benefits Lockheed, Northrop, and RTX, says Gursky. Trump also wants more shipbuilding, which benefits Huntington-Ingalls. "He plans to secure peace in Ukraine, suggesting he has received "strong signals" from Russia that it will come to the negotiating table.

That suggests President Trump "will likely need a strong military to accomplish his goals," added the analyst.

Gursky believes the stock valuations currently reflect the idea that U.S. defense revenue will be flat "indefinitely." That's unlikely and too conservative. He has Buy ratings on shares of General Dynamics, Huntington, L3Harris, Lockheed, Northrop, and RTX.

As for what could change investor sentiment, Gursky is looking for the passage of the federal government's 2025 budget, the introduction of a 2026 budget, and ongoing awards from U.S. and European governments, any of which could help calm fears.

Trump's positioning has been a boon for European contractors. Through early trading Wednesday, shares of U.K.'s BAE Systems, Germany's Rheinmetall, Italy's Leonardo, and France's Thales were up about 83% on average since the Nov. 5 election.

On Wednesday, the four European defense stocks were up about 5% on average in overseas trading. Shares of Lockheed, General Dynamics, Northrop, and L3Harris were up about 1% on average in early trading, while the S&P 500 was off about 0.1% and Dow Jones Industrial Average was up 0.2%.

The valuation changes in the main U.S. and European Defense stocks have resulted in a market value loss of about $50 billion in the U.S. and a gain of about $80 billion in Europe.

It's been an interesting few months for the sector.

Huntington shares were up more than 10% after the shipbuilding comment. Shares of AeroVironment were down almost 6% after relatively disappointing quarterly earnings reported on Tuesday evening.

Write to Al Root at allen.root@dowjones.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

March 05, 2025 11:32 ET (16:32 GMT)

Copyright (c) 2025 Dow Jones & Company, Inc.