With governments and nation-states, particularly those neighboring bigger ones, no longer taking their territorial sovereignty for granted and emerging superpowers more willing than ever to challenge the existing world order in the interest of a more multipolar world, MSA Safety Incorporated (MSA), Moog Inc. (MOG.A), and Invesco Aerospace & Defense ETF (PPA) could be ideal investments to derive value from mankind’s habitual zero-sum game.
More than a year has passed since decades of seemingly unending relative peace in Europe after World War II ended abruptly when persistent geopolitical tensions between Russia and Ukraine escalated into a full-blown military conflict.
Amid souring relationship and rising tensions between the U.S. and China, not helped by Xi Jinping’s ascension to an unprecedented third term in power and the ongoing military stalemate between Russia and Ukraine, there is an ever-increasing imperative for the U.S. and all members of the broader NATO alliance to bolster their defenses to hold their own in an evolving power conflict that is threatening to spiral out of control.
Moreover, the redrawing of the global energy map and shifting geopolitical inclinations in the Middle East since the beginning of the conflict in Ukraine complicates matters further.
With the global defense market growing from $534.79 billion in 2022 to $577.19 billion in 2023 at a 7.9% CAGR and expected to keep growing at a 5.6% CAGR to $718.12 billion in 2027, let’s take a closer look at the featured securities.
Stocks to Buy:
MSA Safety Incorporated (MSA)
MSA is an international developer, manufacturer, and supplier of safety products and software that protect people and facility infrastructures in the oil, gas, petrochemical, fire service, construction, industrial manufacturing applications, heating, ventilation, air conditioning and refrigeration, utilities, military, and mining industries.
On March 10, MSA paid its first quarter cash dividend of $0.46 per share of common stock. This was preceded by a payment of $0.5625 per share of preferred stock on March 1.
MSA pays $1.84 per share annually as dividends. This translates to a forward yield of 1.40% at the current price, better than the four-year average dividend yield of 1.32%. The company’s dividend payouts have grown for 22 consecutive years and at a 5.6% CAGR over the past five years.
On January 5, MSA announced that it had divested a wholly-owned subsidiary that holds legacy product liability claims relating to coal dust, asbestos, silica, and other exposures, to a joint venture between R&Q Insurance Holdings Ltd. and Obra Capital, Inc.
To that end, MSA contributed $341 million in cash and cash equivalents, while the latter duo contributed an additional $35 million and assumed management of the divested subsidiary, including the management of its claims.
This transaction has enabled MSA to remove all legacy cumulative trauma product liability reserves, related insurance assets, and associated deferred tax assets of the divested subsidiary from its balance sheet, thereby increasing its strength and the predictability of cash flows. The company expects this to help it focus more on its future growth.
Superior execution has helped MSA navigate a challenging economic environment and increase its net sales to a record $1.53 billion during the fiscal year that ended December 31, 2022. During the same period, the company’s adjusted EBITDA increased by 18% year-over-year to $337.50 million, while its adjusted operating income increased 20.7% year-over-year to $290.39 million.
Consequently, MSA’s adjusted earnings for the fiscal year increased by 20.4% and 20.7% year-over-year to $222.51 million and $5.65 per share, respectively.
Analysts expect MSA’s revenue and EPS for the second quarter of the fiscal year ending June 30, 2023, to increase by 7.2% and 2.3% year-over-year to $399.27 million and $1.32 per share. Moreover, the company has an impressive history of surpassing its consensus EPS estimates in each of the trailing four quarters.
Over the past six months, the stock has gained 12.5% to close the last trading session at $131.58, above its 200-day moving average of $129.44.
Despite its recent gains, the stock is still trading at a forward P/E multiple of 23.89, 10% below its 5-year average of 26.55. Similarly, its forward EV/EBITDA and Price/Sales multiples of 14.78 and 3.19 also compare favorably to the respective 5-year averages of 17.48 and 3.47.
MSA has an overall rating of B, which equates to a Buy in our POWR Ratings system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
MSA also has a B grade for Momentum, Stability, Sentiment, and Quality. It is ranked #6 of 71 stocks in the Air/Defense Services industry.
Click here for additional ratings for MSA’s Value and Growth.
Moog Inc. (MOG.A)
MOG.A designs, manufactures, and integrates precision motion, fluid controls, and control systems for the global aerospace, defense, and industrial market. The company operates through three segments: Aircraft Controls segment; Space and Defense Controls segment; and Industrial Systems segment.
On March 6, MOG paid its quarterly dividend of $0.27 per share on its outstanding Class A and Class B common shares. With this payout, which represented an increase of 4% over the previous dividend, the company has distributed approximately $9 million to its shareholders.
MOG pays $1.08 annually as dividends. This translates to a forward yield of 1.08% at the current price, comparable to the four-year average dividend yield of 1.23%.
For the first quarter of the fiscal year 2023 that ended December 31, 2022, MOG’s net sales increased 5% year-over-year to $760.10 million. During the same period, the company’s gross profit increased 5.6% year-over-year to $203.69 million. As a result, its adjusted net earnings for the quarter increased by 11.9% and 13.6% year-over-year to $39.76 million and $1.25 per share, respectively.
Analysts expect MOG’s revenue and EPS for the fiscal year 2023 to increase 4.6% and 3.2% year-over-year to $3.17 billion and $5.74 per share, respectively. Both revenue and EPS are expected to keep increasing over the next two fiscal years to reach $3.58 billion and $7.33 per share, respectively.
The stock has gained 4.1% over the past month and 31.6% over the past six months to close the last trading session at $100.04, above its 50-day and 200-day moving averages of $99.03 and $86.90, respectively.
MOG.A’s forward EV/Sales multiple of 1.28 is 20.6% below the industry average of 1.61. Similarly, its forward Price/Sales and Price/Book multiples of 1.00 and 1.95 compare favorably to the respective industry averages of 1.28 and 2.38, indicating upside potential for the stock.
MOG.A has an overall rating of A, which translates to a Strong Buy in our POWR Ratings system. It has a B grade for Growth, Value, and Stability.
Unsurprisingly, MOG.A tops the list of 71 stocks in the Air/Defense Services industry.
Additional ratings for the stock’s Momentum, Sentiment, and Quality can be found here.
ETF to Buy:
Invesco Aerospace & Defense ETF (PPA)
PPA is an exchange-traded fund launched and managed by Invesco Capital Management LLC. It is designed to deliver exposure to businesses in the aerospace and defense sector, which tend to be large and slow-growing but remarkably stable due to long-term government contracts enhancing the predictability of business prospects.
With $1.88 billion in AUM, PPA’s top holding is Boeing Company (BA) with a weightage of 6.68%, followed by Northrop Grumman Corp (NOC) at 6.56% and Lockheed Martin Corporation (LMT) at 6.49%. With a total of 55 holdings and the top 10 holdings constituting 52.4% of the assets, this fund is a suitable choice for those seeking broad exposure to the industry.
The fund’s expense ratio is 0.58%, compared to the category average of 0.45%. The fund’s net inflow came in at $2.76 million over the past month and $101.36 million over the past three months. It has a beta of 0.98.
The ETF has gained 4.4% over the past month and 19.9% over the past six months to close the last trading session at $81.88. The NAV was $81.82 as of April 13, 2023.
The fund is currently trading 2% and 8.3% above its 50-day and 200-day moving averages, respectively.
PPA’s investment worthiness is reflected in its POWR Ratings. The ETF has an overall rating of A, which equates to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
PPA also has an A grade for Trade, Buy & Hold, and Peer. It is ranked #4 of 36 funds in the Industrials Equities ETFs category.
Consider This Before Placing Your Next Trade…
We are still in the midst of a bear market.
Yes, some special stocks may go up like the ones discussed in this article. But most will tumble as the bear market claws ever lower this year.
That is why you need to discover the “REVISED: 2023 Stock Market Outlook” that was just created by 40 year investment veteran Steve Reitmeister. There he explains:
- 5 Warnings Signs the Bear Returns Starting Now!
- Banking Crisis Concerns Another Nail in the Coffin
- How Low Will Stocks Go?
- 7 Timely Trades to Profit on the Way Down
- Plan to Bottom Fish For Next Bull Market
- 2 Trades with 100%+ Upside Potential as New Bull Emerges
- And Much More!
You owe it to yourself to watch this timely presentation before placing your next trade.
REVISED: 2023 Stock Market Outlook >
MSA shares were trading at $130.23 per share on Friday afternoon, down $1.35 (-1.03%). Year-to-date, MSA has declined -9.38%, versus a 7.99% rise in the benchmark S&P 500 index during the same period.
About the Author: Santanu Roy
Having been fascinated by the traditional and evolving factors that affect investment decisions, Santanu decided to pursue a career as an investment analyst. Prior to his switch to investment research, he was a process associate at Cognizant. With a master's degree in business administration and a fundamental approach to analyzing businesses, he aims to help retail investors identify the best long-term investment opportunities.
2 Exceptional Defense Stocks and 1 ETF to Buy in Terms of Momentum and Value StockNews.com
