NH Investment & Securities evaluated on the 25th that although the stock prices of defense industries have been continuously rising, they still hold investment attractiveness as the possibility of geopolitical crises remains high.
Research Institute Lee Jae-gwang and Im Ji-yong said that in terms of regions, they prefer defense stocks in Europe, the United States, and South Korea in that order. The two researchers noted, "Defense expenditure in Europe will significantly increase, and the United States is expected to raise expenditures in certain sectors," adding, "Although the domestic market in South Korea is smaller than in Europe and the United States, growth through exports is possible."
The two researchers recommended Rheinmetall among European defense stocks because it is expected to benefit the most from the increase in defense expenditure. The fact that Rheinmetall aims to expand its annual revenue from €9.6 billion in 2024 to €30 billion by 2030 also supports the expectation of a high growth rate.
Among American defense stocks, Northrop Grumman was named the most preferred stock. This is because the "Golden Dome" project promoted by former President Donald Trump is likely to increase investments in missile defense systems. The Golden Dome encompasses advanced technologies and space-based interception systems that detect and intercept various threats, including ballistic missiles, cruise missiles, and hypersonic weapons, similar to Israel's Iron Dome.
The two researchers suggested Palantir as a second preference, noting that it is expected to benefit from increased investments in unmanned weapon systems in the United States. They stated, "Palantir will play a significant role in shifting the U.S. Army's main weapon systems from manned to unmanned systems," adding, "However, it is necessary to consider the high valuation, with a 12-month forward price-to-earnings ratio (PER) of 150 times."
Among South Korean defense stocks, they ranked Korea Aerospace Industries (KAI) as their top choice. The two researchers said, "As the timing of the FA-50 delivery to Poland and Malaysia approaches, an increase in performance is expected, and new exports of Surion and KF-21 will also continue."
The researchers also positively evaluated Poongsan. They stated, "Poongsan is the only domestic manufacturer of artillery shells, but the value of its defense business is not being properly recognized," noting that the average 12-month forward PER for defense stocks is around 20 times, while Poongsan is trading at about 7 to 8 times.