This article looks at 8 Best Small-Scale Defense Stocks to Buy Now. In this article, we will look at how Smith & Wesson Brands, Inc. (NASDAQ:SWBI) where it stands against other small defensive stocks. We also delve deeper into the impact of ongoing military conflicts on the defense industry.
The world has been rocked by conflict for the past few years. On November 19, Ukraine marked 1,000 days since Russia invaded the country, a war that never ended immediately. Armenia and Azerbaijan continue to exchange heated words on the border, after losing control of the Nagorno-Karabakh region to Azeri forces in 2020.
The Middle East is facing its worst crisis since the Arab-Israeli War of 1973, when Israel attacked Gaza and followed Lebanon in launching its response to Hamas’s October 2023 attack on the country.
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Although the human impact of the wars has been devastating, the defense industry has profited by attracting investors to stockpile their stocks. After Iran launched projectiles at Tel Aviv and Israeli military bases on October 1, several top defense contractors saw their stocks soar. As of November 19, the Aerospace & Defense ETF issued by iShares has gained 19.26% year to date, outperforming the broader market by more than two percentage points.
However, defense sharing in the third week of November follows the announcement of the Department of Government Operations (DOGE) by President-elect Donald Trump. The Republican front-runner has nominated Elon Musk and Vivek Ramaswamy to co-head the department, which will operate outside the federal government and aim to improve governance by cutting spending, cutting unnecessary regulations, and restructuring federal agencies.
In a note published on election day, Jefferies analysts argued that a renewed focus under the Trump administration to force allies to pay their share could hurt defense sentiment. During his first term in office, the 78-year-old threatened to withdraw from NATO if other member states did not increase their military spending. You can read about spending inequality in our 2023 article, Military Use of NATO by Country: Top 20 countries.
Trump also vowed to end the conflict in Ukraine and the Middle East. Speaking to Quartz on November 4, Russell Hackmann, president of Hackmann Wealth Partners, said the following:
Trump is very anti-war so that’s bad for defense stocks.
Conversely, some experts see long-term growth opportunities in the defense sector under Trump’s second term. He is credited with leaving a mark on the US military during his first term, when defense spending reached record highs and the establishment of the United States Space Force (USSF). Over the past year or so, Trump has talked frequently about wanting to build ‘a a large Iron Dome missile defense shield for our entire country.’
We used stock checkers to identify aerospace and defense companies with a market value between $300 million and $2 billion, as of November 19, 2024. We then selected the top 8 stocks that had the highest number of equity hedge funds. see. We’ve listed them in ascending order of hedge fund owners at each company. The hedge funds data is taken from Insider Monkey’s database of 900 hedge funds in the third quarter of 2024. We also included firearms companies in our analysis as they are considered part of the broader defense industry.
Why are we interested in stocks that hedge funds accumulate? The reason is simple: our research has shown that we can outperform the market by mimicking the stock picks of the best hedge funds. Our quarterly newsletter strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percent (see more details here).
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Aerial shot above a gunsmith’s workshop, surrounded by tools of the trade.
Market cap: $589 million
Number of Hedge Fund Owners: 15
Smith & Wesson Brands, Inc. (NASDAQ:SWBI) is a firearms company headquartered in Maryville, Tennessee. It is one of the leading manufacturers of long guns, handguns, rifles and other shooting accessories. The company has been in business since 1852 and sells its products to a variety of customers, including competitive shooters, gun enthusiasts, security organizations, individuals who desire personal protection, sportsmen, and hunters.
In its latest Q1 2025 Earnings Call on September 5, Smith & Wesson Brands, Inc. (NASDAQ:SWBI) reported quarterly sales of $88.3 million, down 22.7% year-over-year, due to demand for soft firearms amid a broad increase in inflation. pressures on consumer spending. Total revenue of 27.4% was 0.8% higher compared to the same period last year. This was primarily due to increased absorption in higher production, price increases that took effect in January, and lower inventory reserve adjustments and relocation costs. The company also saw increased interest expense in the quarter, coupled with lower revenue, resulting in a net loss of $2.1 million.
Despite a challenging quarter, Smith & Wesson Brands, Inc. (NASDAQ:SWBI) maintained its outlook for the fiscal year. It was boosted by the successful launch of new products and saw good demand momentum towards the end of Q1. The company expects sales to increase significantly during the second fiscal quarter as it enters a busy fall season. Sales growth is expected to be 5% to 10% higher year-on-year, which will also improve net income.
From a balance sheet perspective, Smith & Wesson Brands, Inc. (NASDAQ:SWBI) accelerated share repurchases during the quarter and repurchased approximately 871,000 shares worth $13 million. It also paid a $5.9 million dividend and ended Q1 FY2025 with $35.5 million in cash and $70 million in line of credit.
The sentiment around the stock is generally bullish. Wall Street analysts have a consensus Strong Buy rating for SWBI, with a share price upside potential of 38%. According to Insider Monkey’s Q3 2024 database, 15 hedge funds were involved in the company. Smith & Wesson Brands, Inc. (NASDAQ:SWBI) is among the best defense stocks to buy now.
Overall SWBI you are in level 6 on our list of the best small protective clothing you can buy. While we acknowledge the potential of SWBI as an investment, our conviction is based on the belief that AI stocks hold great promise of delivering high returns, and we do so over a short period of time. If you’re looking for an AI stock that’s more promising than SWBI but trades at less than 5 times its earnings, check out our report on The highest number of AIs.
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Disclosure: None. This article was originally published on Insider Monkey.
