Email of the day on basic military equipment
Comment of the Day

March 10 2023

Commentary by Eoin Treacy

Email of the day on basic military equipment

Your focus on some military defence companies is timely. What do you think are the best "spades and shovels" type defence companies (not high techs like Raytheon) but ones that makes bullets, shells, camouflage, personal military equipment? Have we missed Rheinmetall?

Can you pls keep them under review in the video thereafter as I sometimes don't have time to read the front page and prefer video. Thanks and keep up the good work.

Eoin Treacy's view

Thank you for this email and suggestion. I’ll certainly cover more of the charts in the videos in future.

The challenge of investing in defense stocks is the sector went through a lengthy process of consolidation as budgets were cut following the fall of the USSR. For example, the UK armoury where munitions are manufactured is owned by BAE Systems and it represents a negligible portion of earnings.
The easiest way to invest is based on the conclusion European countries will be more likely to meet their NATO obligation to spend 2% of GDP on the military in future. Military acquisitions tend to be very nationalistic for obvious reasons. That suggests Rheinmetall and MTX Aero Engines will benefit most from German spending, Thales, Safran and Airbus from French spending, Rolls Royce and BAE Systems for the UK, Leonardo for Italy etc.

Hensoldt AG in Germany is an example of a smaller company that provides night vision accessories.

I would caution that many of these shares are overbought in the short term and susceptible to at least some consolidation so waiting to initiate positions is likely to be a fruitful exercise.  

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