Ever since the U.S. and Israel bombed Iran in February, military contractor stocks continued to slip. Northrop Grumman (NOC) peaked at $774 in early March. Last week, shares closed in the low $520 range. Lockheed Martin (LMT) and RTX (RTX) are also off their 52-week highs.
Leidos (LDOS) is in a sustained downtrend. Shares peaked at $205.77 but traded below $110 last week. On June 17, BofA downgraded LDOS stock to Neutral from Buy. It blamed weakness in the healthcare business for the negative view.
That view is flawed, since Leidos generated close to 60% of its revenue from defense and national security operations.
The Pentagon is realizing that low-cost missiles are required in the new war. They cannot use $1 million missiles to counter inexpensive Iranian drones that cost $10,000 - $50,000. That could create a new opportunity for Leidos and Anduril.
AeroVironment (AVAV) failed to hold the $200 support zone earlier this month. On June 3, it won a $117.3 million fixed-price contract to deliver unmanned aircraft systems. On June 15, it announced a new lightweight uncrewed ground vehicle. Its purpose includes reconnaissance, explosive ordnance disposal, and communications support missions.
AVAV stock still has downside risks. Valuations are high, with a forward P/E of nearly 60 times. It has strong growth, while profitability needs to improve.
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