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3 Defense Stocks to Own During Geopolitical Strife

With the spotlight on developments along the Russian-Ukrainian border, these three defense companies may be good ways to launch an offensive attack.

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This story originally appeared on MarketBeat

The Russia-Ukraine conflict has captured the eyes of the world, including those of investors.

Depositphotos.com contributor/Depositphotos.com - MarketBeat

It is yet another reminder of how geopolitical events can have a profound impact on the global capital markets. The crisis has commanded center stage even as earnings season hits a peak and interest rate hike concerns persist.

Common wisdom is to bunker down during times of military unrest. That can mean any number of things from increasing cash and bond allocations to rotating into non-cyclical names.

Another strategy shift popular among risk-bearing investors is to buy defense industry stocks. With the spotlight on developments along the Russian-Ukrainian border, these three defense companies may be good ways to launch an offensive attack.

What is a Good Defense Industry Stock?

General Dynamics Corp. (NYSE: GD) is a well-diversified defense contractor that has a strong market position in combat systems, marine systems, and mission-critical technologies. It also operates in the business sector where it provides a range of aviation products and aircraft services.

The company's most recent quarterly report highlighted favorable order rate trends in the Aerospace division. Combined with momentum in the Marine business, this drove an earnings beat that has propelled the stock to a new 52-week high. Management expects these units to continue to perform well as government and business customers require more jets, combat ships, and nuclear-powered submarines.

On top of General Dynamics' prospects for steady long-term growth, the investment is attractive due to its shareholder friendly nature. The company has increased its dividend in each of the last 31 years, earning its membership into the S&P 500 Dividend Aristocrats club. Last quarter management raised the dividend by 8% which brings the forward dividend yield (2.2%) closer to the peer group average. General Dynamics' stock repurchase plans further cement its status as a dynamic long-term value play.

Is L3Harris Technologies Stock Undervalued?

L3Harris Technologies, Inc. (NYSE: LHX) doesn't manufacture heavy artillery but it does make equally important communications systems for both the government and commercial end markets.

At this time of elevated national security risk, the U.S. government is undoubtedly evaluating mission-critical electronics systems. This bodes well for a company like L3Harris which has several government agencies and departments as customers, not to mention main White House defense contractors Boeing and Lockheed Martin. This dual exposure makes L3Harris a unique company to own for its direct and "back-door' government revenue sources.

Earlier this month L3Harris exceeded fourth quarter earnings expectations in delivering 5% year-over-year profit growth. The beat was driven by the rise in U.S. military spending, a trend that is expected to have staying power over the next few years. Aircraft mission systems and missile defense technologies will likely experience increasing demand as America bolsters its resources to address the ongoing threat of terrorist activity and other global threats.

Like General Dynamics, L3Harris screams value. The dividend was recently raised by 20% to extend the company's dividend hike streak to 21 years. Although the forward yield is just under 2%, the runway for additional dividend growth is long given the current 28% payout ratio.

Is Raytheon Technologies Stock a Buy?

Raytheon Technologies Corp. (NYSE: RTX) has evolved into a jack-of-all-trades in the industrial sector, but its main focus is still the defense and aerospace markets. The more diversified business model of today stems from its 2020 merger with United Technologies which brought Pratt & Whitney and Collins Aerospace into the mix.

Lately, it has been business as usual for the Dow-30 component. A 46% surge in fourth-quarter adjusted earnings growth reflected strength in the United Technologies side of the business, which is expected to keep growing at a faster clip. The Raytheon side of the business, on the other hand, is dealing with a slump in international orders and the divestiture of underperforming segments.

Going forward, both businesses are expected to experience growth. In the case of the United Technologies business, it will be driven by strong demand from military and commercial aviation customers for aircraft engines, parts, and solutions. Raytheon's missile defense, intelligence, and space products are expected to be a steady need for the U.S. military.

With the integration of the two businesses progressing well, investors should feel more comfortable about owning Raytheon. Management forecasts that the growth ahead will be accompanied by operating efficiency gains and improved margins.

At a below-industry forward P/E ratio of 16x, Raytheon is a two-headed aerospace and defense monster offering investors an excellent combination of growth and value.

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