The Israel-Hamas war is drawing attention to defense stocks like Kratos and AeroVironment as investors make bets on the central role of technology in the conflict.
The companies, which specialize in making unmanned systems like drones, are seeing increasingly bullish sentiment around their stocks. Both Kratos and AeroVironment are showing strength as their shares near potential buy zones.
Investors tend to buy into defense stocks like weapons and aircraft manufacturers as demand rises in conflict. How much of an impact the Israel-Hamas war will have on these companies in particular remains to be seen.
Unmanned Systems Soar In War
Kratos Defense and Security Solutions is hovering around a key pivot point. The first trading session after the Israel-Hamas war broke out on Oct. 7, KTOS stock popped 11% in heavy volume. Shares are now trying to tighten up around a 17.30 entry point.
Kratos currently has a Relative Strength Rating of 97 and has risen more than 66% year to date. Kratos holds a Composite Rating of 96 according to IBD research and is ranked No. 6 in IBD's Aerospace/Defense industry group.
The company makes communications systems and unmanned platforms, including a subsonic fighter called the Valkyrie intended to fly alongside modern manned fighter jets.
Kratos issues quarterly results on Nov. 2. Traders who do not have a solid profit cushion heading into the earnings report should wait until the numbers are out before making a decision to purchase shares. The market rally attempt has not yet staged a follow-through day, meaning traders should be cautious about making any new buys.
AeroVironment, meanwhile, is seeing its relative strength line hit a 52-week high as it works on the right side of base pattern, earning a Blue Dot according to MarketSmith. AeroVironment has a Relative Strength Rating of 96, with shares forming a 32-day cup pattern beginning in September when it saw a surge in trading volume on earnings.
Aggressive traders potentially could use the 120 price level as a buy point. For both stocks, a bounce off the 21-day line in coming days could possibly provide lower-risk entries if these stocks pull back.
AeroVironment has a Composite Rating of 99 according to IBD research and is No. 1 in IBD's Aerospace/Defense group. AeroVironment, like Kratos, focuses on unmanned aircraft systems including the Puma, designed for surveillance and reconnaissance.
Israel-Hamas War And Stock Action
Such vehicles — and their manufacturers — have attracted attention during the Israel-Hamas war, as well as during the continuing Russian invasion of Ukraine. Unmanned Aerial Vehicles, which range from sophisticated weapons platforms comparable in size to manned fighter jets to diminutive, off-the-shelf consumer drones jury-rigged to carry weapons, have changed the outcome of battles across the globe and forced armed forces to rethink how warfare is conducted.
But past the initial surge of interest in defense stocks after the outbreak of conflict, investors are questioning whether such rallies are here to stay or just temporary. While the war in Ukraine led to a temporary boost in stocks for defense mainstays like Lockheed Martin, a sustained rally for the sector largely failed to materialize.
Lockheed stock has risen in recent weeks, but shares remain below their 40-week moving average. The Relative Strength Rating for Lockeed is a weak 65 out of 99.
