World-Leading Weapons Stocks Shift, with DAS Joining Rheinmetall at the Top
In the ever-evolving landscape of global politics and economics, the defense industry has emerged as a significant player, with its revenue showing a positive outlook. This trend is particularly evident in the aftermath of the Ukraine war and the ongoing geopolitical tensions that have led to a surge in military spending worldwide.
The CEO and majority shareholder of Börsenmedien AG, Mr. Bernd Förtsch, has joined the bandwagon, entering into direct and indirect positions in Palantir Technologies, a leading player in the tech-defense sector.
Global military spending reached an astounding $2.4 trillion in 2023, marking a 27% increase since 2014, when adjusted for inflation. Even the world's largest military spender, America, is projected to spend 20% more on defense by 2030, according to independent estimates by the Lowy Institute.
This surge in spending has significantly benefited the top defense companies, with the revenue of the 100 largest defense companies increasing almost 50% since the beginning of the Ukraine war. One such company is Rheinmetall, a leading European defense company, which has seen its revenue from weapons and other military services increase by 53% between 2014 and 2022.
Another asset manager sees Rheinmetall as a winner, citing continuous multi-million dollar orders and capacity expansion. However, not everyone shares this optimistic view. One critical voice describes Rheinmetall's stock as overhyped, suggesting that long-term valuation should revert to the long-term average.
Investors are currently faced with a dilemma of choice, as the high quality density of defense stocks makes them attractive options. In a survey by Wikifolio and VanEck, Rheinmetall was not considered the best defense stock, with Airbus emerging as the winner. The survey evaluated companies based on criteria such as business model robustness, competitive position, management quality, price valuation, and investment strategy.
Interestingly, the survey results showed a division of views on Rheinmetall. The best-rated defense sector stock in the survey, excluding Airbus, Northrop Grumman, or Lockheed Martin, was Rheinmetall. The top seven companies, including Rheinmetall and Palantir, were very close in terms of financial risk-bearing capacity, competitive position, and business model. Northrop Grumman and Lockheed Martin followed Airbus in the survey.
Peace researchers, however, expect the global security situation to deteriorate further, which could potentially sustain the growth trajectory of the defense industry. As the world navigates through these complexities, the defense industry continues to be a sector of keen interest for investors and analysts alike.
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