Investing in stocks that may benefit from war is a complex and contentious issue. While the topic is sensitive, the provocative actions of Hamas leading to the loss of human lives and Israel’s subsequent response are paving the path for a significant military campaign, bringing attention to Israeli defense stocks like TAT Technologies (NASDAQ:TATT) and Elbit Systems (NASDAQ:ESLT).
Don't Miss our Black Friday Offers:
- Discover the latest stocks recommended by top Wall Street analysts, all in one place with Analyst Top Stocks
- Make smarter investments with weekly expert stock picks from the Smart Investor Newsletter
From the stock market’s perspective, the outbreak of war often results in an increase in defense budgets, which can provide a solid growth platform for companies operating in the defense sector. Given this context, let’s explore TAT Technologies and Elbit Systems, the prominent players in the Israeli defense industry.
TAT Technologies
TAT Technologies is a prominent supplier of products and services for both the commercial and military aerospace sectors and the ground defense industry. The graph below shows that TAT Technologies stock has gained quite a lot on a year-to-date basis, reflecting improving revenue and profitability.
The company is benefitting from the increase in OEM (Original Equipment Manufacturer) purchase orders and MRO (Maintenance, Repair, and Operations) intake, led by a recovery in supply chain and materials availability. Furthermore, its APU (Auxiliary Power Unit) line of business is benefitting from the company’s growing capacity and improving efficiency.
Currently, TATT stock carries a Neutral Smart Score of five on TipRanks, which implies that it could perform in line with the broader markets. However, this could improve in the future owing to the anticipated increase in the defense budget and strong order backlog.
Elbit Systems
Elbit Systems operates in the defense and homeland security sectors. The company develops various systems and products for defense, homeland security, and commercial applications. Its key areas of operation encompass military aircraft and helicopter systems, naval systems, unmanned aircraft systems, and night vision equipment, among others.
Elbit stock has marked significant gains on a year-to-date basis, driven by its solid financial performance. The company delivered double-digit revenue growth in Q2 (second quarter), reflecting the conversion of its order backlog, increased capacity, and sustained demand for its solutions. In addition, the easing of the supply chain and labor market are leading to an improvement in its operating profitability.
In the future, the company is poised to benefit from a solid backlog (which stood at $16.1 billion as of June 30) and expansion of the defense budget. However, ESLT stock also currently has a Neutral Smart Score, of four.
Bottom Line
Currently, TATT and ESLT stocks have both been assigned a Neutral Smart Score on TipRanks. This rating is expected to improve in the near future, primarily driven by the anticipated boost in the defense budget, which could result in more contracts being awarded to TATT and ESLT. However, investors should note that these companies are not immune to macro headwinds, and caution is recommended before investing.
