2022 Was a
Banner Year for #Aerospace & #Defense #Stocks,
What’s In
Store for 2023?
Vancouver, Kelowna, Delta, BC, 29 December 2022 Investorideas.com, a global investor
news source covering defense stocks releases an exclusive Q&A interview looking at the forecast
for 2023.
Investor Ideas talks to Scott
Sacknoff, manager of the SPADE Defense Index, an investment benchmark for companies involved with
the defense, homeland security, aerospace, and government space markets.
In this interview he reviews the past year and
discusses his forecast for 2023 and the themes investors should look out for.
Read this in full at https://www.investorideas.com/news/2022/defense/12291Defense-Stocks-2023.asp
Q&A Interview:
InvestorIdeas.com: Last year
at this time, you forecasted that investors in defense stocks would be rewarded
for their patience in 2022. Your timing
proved to be perfect.
Scott Sacknoff:
It actually was an easy forecast for us to make.
After two down years, there were multiple sector trends and Index technicals that
were indicating the likelihood of a rebound in 2022. We obviously couldn’t have
predicted that our SPADE Defense Index would gain nearly 10% in a year when the
S&P500 was down nearly 20% and the NASDAQ was down roughly 30%, but the
signs were there to be read. And while we highlighted increasing tension around
the world, including the fact that Russia moved troops to Ukraine’s border,
their invasion in February was not a path that many analysts thought they would
take. Nor did many predict the continued logistical failures of the Russian
military operation nor the brutality and war crimes they continue to
perpetrate. The conflict evolving into a protracted battle has benefitted many firms
operating in the sector as the world quickly united against Russia and devoted
funds and weapons to support Ukraine. Meanwhile, commercial air traffic was due
to expand after being limited during the pandemic and aircraft manufacturers
received hundreds of billions of dollars in orders for new planes from the
airlines.
2022 saw many investors act on the news of the
invasion and the growth associated with international sales and commercial
activity driving the share prices of many defense firms to new highs. Funds
such as Invesco’s Aerospace and Defense ETF (NYSE: PPA) attracted more than $1
billion of new investment inflows as it reached historic highs in price,
trading volume, and assets under management.
InvestorIdeas.com: So how do
you see this playing out for investors in 2023?
Scott Sacknoff:
I anticipate much more of the same, even as
economists predict that the US will experience a recession. The Biden
Administration has shown to be in favor of a strong defense sector and Congress
recently passed a budget for FY2023 that increased funding for the Department
of Defense by more than $40 billion over last year. Additionally, on top of
that there is another $27.9 billion devoted to Pentagon efforts to support
Ukraine. This is anticipated to help boost the top lines of many companies
operating in the defense sector. Similarly, orders for commercial air vehicles are
rising along with passenger and cargo traffic. Space activities by government
and commercial customers remain strong. And homeland security issues remain in
the news.
As I’ve mentioned a number of times over the years,
the best time to invest in the defense sector is when future security and
safety is unknown. Besides Russia/Ukraine, there is also tension between China
and Taiwan, North Korea and South Korea, Turkey and the Kurds in Iran, Iran and
Israel, the list goes on. Key to 2023 growth via international sales by US
defense firms, is that while the recognition by European nations that the
threat posed by Russia is real, they have most importantly, matched that with a
willingness to increase their defense budgets and acquire US air and missile
defense systems and other military hardware. Sales to US allies in Europe should
impact the top line revenues of many firms in 2023.
Taking all these things together…expanding military
budgets in the United States, expanding international defense sales, and a return
to an expansion phase for commercial aircraft deliveries, and 2023 is looking
like another great year for defense stocks. An in a US economic environment of
rising interest rates, higher inflation, and possible recession, the perceived
safety of defense stocks should remain in favor by investors.
InvestorIdeas.com: So, what can derail it? What worries you the
most?
Scott
Sacknoff: There are a number of external economic
factors that bear watching. Historically, a broad stock market drop tends to
pull all securities lower in the short-term, however, over longer time periods,
defense stocks tend to be less sensitive to issues related to interest rates
and inflation. This is mainly due to having its largest customers—national
governments—being able to print their own money in order to meet the critical
need of providing security. Also defense firms typically maintain low debt
ratios, which should protect them from rising interest rates. Lastly, everyone
may not realize this, but many defense contracts come with inflation escalation
clauses. In fact, the budget just approved by Congress and signed by the
President includes $8 billion to address the impact of inflation. Still, the
biggest concern would be whether investors withdraw their investments in the
sector if there is a peaceful conclusion to the war between Russia and Ukraine.
Another thing to watch is if Republican control of the House of Representatives
in 2023 and 2024 leads to a reduction in the political will to support funding
defense and security. While a minority of Congresspeople favor doing this, they
are still just a small minority. The security and the safety of the nation has
importantly, never been out of favor for long.
InvestorIdeas.com: Thank you for taking the time to chat with us. For more information on the SPADE Defense
Index, please visit spadeindex.com/defense. To learn
more about the Invesco Aerospace and Defense ETF that tracks this benchmark,
please visit Invesco’s website, the ticker on the NYSE Arca is “PPA”.
Research defense stocks with Investorideas.com defense and security stock directory
https://www.investorideas.com/Companies/HomelandDefense/Stock_List.asp
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