Boeing Co BA shares have faced significant challenges in recent sessions after the well-publicized 737 Max 9 Alaska Airlines incident. However, the potential for increased defense spending in 2024 could serve as a lifeline for the company.
Boeing’s array of military hardware, ranging from the Apache attack helicopter to the B-52 bomber, positions the company as a potential beneficiary of heightened demand for defense equipment. These assets could become sought-after commodities for Western nations as geopolitical tensions escalate in the Middle East and Red Sea regions, compounded by the ongoing conflict between Russia and Ukraine.
U.K. Minister Advocates for Expanded Defense Spending
At Lancaster House on Monday, U.K. Defence Secretary Grant Shapps declared an end to the post-Cold War “peace dividend.” He emphasized the necessity for allied and democratic nations worldwide to bolster their defense expenditure, characterizing the current global climate as a transition from a post-war to a pre-war era.
In the U.S., defense budget allocations have consistently increased since 2016, with the 2024 defense budget amounting to $886 billion. By comparison, the combined budgets for education, health, and other discretionary expenses totaled $773 billion. It is anticipated that over half of the defense budget will be directed towards contractors.
Given this context, which stocks are poised to benefit from the projected $450 billion influx?
U.S. Defense Stocks to Watch
One of Boeing’s primary competitors, Lockheed Martin Corp LMT, has long been positioned to capitalize on increased defense expenditures, with approximately 50 countries among its clientele. The company supplies renowned aircraft such as the Black Hawk helicopter and the F-16 and F-35 jet fighters.
Lockheed also offers autonomous aircraft and is actively integrating artificial intelligence systems to redefine the human-machine relationship. Since the end of December, Lockheed Martin shares have risen by 2.2%.
Northrop Grumman Corp NOC is responsible for producing the iconic B-2 Stealth Bomber, as well as a range of air and underwater drones and electronic targeting and surveillance equipment. The company’s shares have climbed by 2.8% in January.
General Dynamics Corp GD manufactures the Abrams Tank and provides military information technology systems. Despite a 2.7% decline in January, the company remains a significant player in the industry.
In addition to well-established entities, smaller firms such as TransDigm Group Inc TDG and Parsons Corp PSN have also been making strides in the defense space, showcasing potential for growth amid increased military spending. TransDigm Group Inc has experienced a nearly 4% increase in its shares in January, while Parsons Corp has seen a 5% rise.
The premier exchange-traded fund, iShares U.S. Aerospace & Defense ETF ITA, encompasses the majority of the aforementioned companies and more. However, the fund has witnessed a approximately 5% dip in its shares, largely attributable to Boeing’s considerable weighting in its holdings.