Even before the war, arms companies in Ukraine did not suffer. But Putin’s aggression increased the profits of some of them several times. Shares rose by tens to hundreds of percent. They will continue to be interesting, predicts analyst Anna Píchová.
Those who invested in the titles of arms companies before the war earned the most from the arms boom. Whoever favored European companies over American ones did even better.
“Since the end of 2021, for example, German Rheinmetall has strengthened by almost 500 percent, British BAE Systems by some 130 percent, Thales by 110 percent. American companies had smaller profits when Lockheed Martin strengthened by some 30 percent, RTX by 18 and General Dynamics by 38 percent. In contrast, such Boeing fell again by 16 percent,” stock analyst Anna Píchová calculates in the Ve váte podcast.
Compared to the average of both markets, gunsmiths on both continents performed well above average. “American the S&P 500 index in that time from the end of 2021 to the present, it has added just over four percent, and Europe’s Euro Stoxx 600 has since added just under two percent. Armourers did many times better than the entire market,” compares Píchová.
Europe is more promising than America
According to Anna Píchová, European companies have better potential than many renowned American names. Europe is making up for the lack of investment in defense from previous years, the analyst explains.
“I like the European companies more than the American ones. Europe is catching up with the debt it created when armaments were previously abandoned. Many European countries did not even meet the NATO commitment to spend two percent of GDP on armaments.”
The shares of arms companies are sometimes classified together with the shares of cigarette, alcohol or gasoline producers among the so-called sin shares. However, the conflict has changed the outlook on this sector quite a bit. “I wouldn’t be against including arms companies in the portfolio, however I understand that some people have a problem with a certain industry, with certain companies and markets,” says analyst Píchová.
According to Píchová, it is not too late to “jump” into shares from the “defense” sector even now, even if they are currently more expensive. “With some companies, it may be interesting to invest in them even now or possibly wait for some minor correction, but it is good to always keep an eye on those companies.”
Interesting titles can also be found among lesser-known brands. “For example, the Norwegian company Kongsberg Gruppen supplies both defense systems and ammunition, and they also have a second division that deals with oil,” Píchová chooses.
Armorers grow solidly even without war
In 2022, worldwide military spending increased by 3.7 percent, reaching a record two trillion euros. Political will can be very fickle, so it is questionable whether the world will continue to arm itself at a similar pace, according to Anna Píchová, arms companies will still grow.
“I wouldn’t expect orders to drop dramatically. Their growth is gradual, they have concluded long-term contracts. However, it cannot be expected that such a big jump as the companies made in sales with the beginning of Russian aggression will be repeated unless there is a similar war. Growth will return to normal numbers, an average of five to 10 percent per year,” the analyst believes.
The war in Ukraine also helped some Czech arms companies in terms of business. Shares have been available for purchase on the Prague Stock Exchange for over three years Colt CZ. The Czech firearms manufacturer is currently facing an important acquisition of an ammunition producer Sellier & Bellot.
“Colt’s shares were greatly helped by Russian aggression and a contract with the Czech army for the supply of weapons. From 2021 until the end of last year, their sales increased by 40 percent from some less than 11 billion to less than 15 billion. Most of it was the jump in 2022, while last year 2023 revenue growth was less than two percent,” notes Píchová in the Ve váte podcast.
How to invest in arms companies through ETFs? As an investor, what should you especially notice about these manufacturers? Listen to the entire podcast episode in the player at the very beginning of the article.
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