Clouds of War Put Top European Defense Stocks in the Spotlight

Clouds of war continue to loom over Europe as the Russia-Ukraine conflict persists nearly two years since its onset. With the U.S. increasingly engaged in various global hotspots – from Taiwan to the Red Sea – Europe is taking the lead in defense efforts. 

Germany and France, alongside 12 other European countries, are urging the European Investment Bank (EIB) to enhance its defense financing, addressing Ukraine’s struggle to replenish its weapons stockpile.

European Defense Stock Rally

These rapidly evolving developments put the spotlight on top European defense companies such as Rheinmetall (DE:RHM) (OTC:RNMBY), BAE Systems (OTC:BAESF) (DE:BSP), and Saab (OTC:SAABF) (GB:0GWL). Over the past year, Rheinmetall shares have surged by nearly 88%, while Saab and BAE have also seen increases of over 40% each. 

A key driver for this rally has been the pause in U.S. funding for Ukraine and the uncertainty surrounding the upcoming U.S. elections. These factors have intensified, especially as former U.S. President Donald Trump intermittently criticized NATO, despite NATO’s support for continued U.S. funding for Ukraine.

Consequently, Europe’s focus on defense spending could translate into bulging order books for the defense names on our radar today. Another key defense name to watch out for is Israel’s Elbit Systems (NASDAQ:ESLT). A majority of Elbit’s order backlog is made up of orders from outside Israel.

What Is the Best Defense Stock in Europe?

While all of the names on our list have delivered major price gains over the past year, one can expect further upside in these names amid the present geopolitical environment. Moreover, the TipRanks Comparison Tool indicates the lowest PE ratio of 21.88 for BAE Systems. Meanwhile, Ukraine is ramping up its drone attacks in Russia.

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