The Best ASX Defence Stocks
to buy Now In December 2024

Check out our Industry Experts’ report and
analysis on the Best Defence Stocks right now on the ASX

The Best ASX Defence Stocks to buy Now In December 2024

Check out our Industry Experts’ report and analysis on the Best Biotech Stocks right now on the ASX

What Are ASX Defence Stocks?

ASX defence stocks refer to companies listed on the Australian Securities Exchange (ASX) that operate within the defence sector, supplying a variety of defence products, services, and technologies. This sector includes businesses engaged in manufacturing advanced military equipment, aerospace technology, naval ships, and providing security solutions to both Australian and overseas customers.

ASX defence companies range from aerospace specialists like Electro Optic Systems, which focuses on space defence systems, to shipbuilders like Austal, which is renowned for its contracts with the US Navy. The Australian government's defence spending drives the demand for these companies, ensuring a steady flow of contracts and funding for various defence projects.

Investing in ASX defence stocks means putting money into companies that play a crucial role in Australia’s defence capabilities and its strategic position in the global defence industry.

Why Invest in ASX Defence Stocks?

Investing in ASX defence stocks offers a unique opportunity due to the Australian government's increased defence spending and commitment to bolstering the nation's defence capabilities.

The defence sector is witnessing a surge in funding, highlighted by significant projects like the AUKUS nuclear-powered submarine program and the defence strategic review's directives for enhanced military preparedness.

Companies within this sector benefit from long-term contracts and partnerships with both the Australian and overseas governments, providing a stable revenue stream. Furthermore, the global defence market is on an upward trajectory, driven by rising geopolitical tensions and the necessity for advanced defence technologies.

ASX defence stocks, including those involved in aerospace, naval, and land systems, are well-positioned to capture this growth, offering investors exposure to a sector that contributes significantly to Australia's economic growth and national security.

Moreover, the Australian defence industry's focus on innovation, including smart sensor analytics and drone technology, presents growth opportunities in emerging technologies, making these stocks a compelling investment for those looking to benefit from Australia’s defence advancements.

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What to Look for When Investing in Defence Stocks?

When investing in defence stocks, it's crucial to consider several key factors to ensure you're making a well-informed decision. Firstly, assess the company’s contracts and partnerships, especially with governments and major defence organizations. These contracts are indicators of the company's stability and future revenue potential.

Look into the defence spending trends of the Australian government and other countries, as increased funding and priority areas can signal growth opportunities for defence companies.

Additionally, evaluate the company's involvement in innovative technologies and development projects, such as smart sensor analytics, drone technology, and aerospace systems, which are critical for maintaining a competitive edge in the defence industry.

Consider the company’s financial health and growth prospects in the context of global defence market trends and the defence strategic review outcomes. Lastly, understanding the company's role in Australia’s defence capabilities and its contribution to national security can provide insights into its importance and potential for long-term success.

3 Best ASX Defence Stocks to Buy Now in 2024

DroneShield (ASX: DRO)

Austal (ASX: ASB)

Austal Ltd (ASX: ASB) is a naval shipbuilder. It stands out as an attractive investment due to its recent $1.3 billion contract with the US Navy for designing and constructing three medical ships, indicating strong, ongoing demand for its expertise. This contract, bolstering an already impressive $11 billion ..

Electro Optic Systems Holdings (ASX: EOS)

Electro Optic Systems Holdings (ASX: EOS) specialises in defence technologies such as Remote Weapon Systems and Naval Satellite Communications. It made $219.3m in revenue and $113.1m in net operating cash flow in CY23.

3 Best ASX Defence Stocks to Buy Now in 2024

DroneShield Ltd (ASX: DRO)

DroneShield (ASX: DRO) presents a compelling investment opportunity for several reasons. The company's recent $4.3 million contract win from a U.S. Government customer for its counter-drone technology underscores its strong market position and growing trust among high-value clients. This contract, expected to lead to subsequent larger orders, highlights DroneShield's potential for significant revenue growth.

Additionally, the company's leap to profitability in FY23, with a profit after tax of $9.3 million and revenue growth of 224% from FY22, demonstrates its successful operational execution and financial health. DroneShield's focus on a critical and expanding sector of defence technology—counter-drone solutions—aligns with increasing global defence and security spending, driven by heightened drone usage in conflicts and security operations.

With a 64% share price increase in 2023 and a pipeline of over $510 million, DroneShield is well-positioned for future growth, making it an attractive investment.

Austal Ltd (ASX: ASB)

With the Australian government's plan to expand the Navy's warships significantly by 2040, Austal, possessing a strategic agreement with the government and acknowledged as a national asset, is well-positioned for substantial growth.

It has been subject of takeover attempts from South Korea's Hanwha Group which have been rebuffed by the company as it is uncertain the bid would get the blessing of defence agencies in Australia and the USA.

Electro Optic Systems Holdings Ltd (ASX: EOS)

EOS' recent business wins, including RWS customers in Western Europe and Southeast Asia in late 2023, growing military spending in those regions and a $441m order book all position it as a promising investment in the aerospace and defence sector.

The Future Outlook of ASX Defence Stocks

The future outlook of the ASX defence sector appears promising, bolstered by a combination of increased Australian government's defence spending, strategic initiatives, and a global push towards enhanced military capabilities. This outlook is underpinned by several key factors that suggest a trajectory of growth and innovation within the sector.

Firstly, the Australian government's commitment to raising defence spending is a significant driver. With plans to escalate defence funding to 2.3% of GDP by the end of the next decade, as highlighted by the Defence Strategic Review (DSR), the sector is poised for substantial financial injection. This increased funding is expected to support various defence projects and initiatives aimed at enhancing Australia's defence capabilities across multiple domains such as cyber and space.

Technological advancements play a crucial role in shaping the sector's future. With the Australian Defence Force (ADF) prioritizing capabilities like drone technology, smart sensor analytics, and aerospace innovations, ASX companies involved in these technology areas are likely to experience growth. The focus on developing and integrating cutting-edge technologies into the defence arsenal underscores a future where innovation is a key competitive advantage.

The emphasis on self-reliance and securing supply chains indicates a shift towards domestic production and onshoring capabilities. This move not only fosters local industry development but also opens up opportunities for ASX defence companies to partake more significantly in national and international defence contracts.

Pros and Cons of Investing in Defence Stocks

Investing in defence stocks involves several benefits and drawbacks, deeply intertwined with the defence sector's dynamics and the Australian government's defence spending. A major pro is the sector's resilience; defence stocks often exhibit stability during economic downturns, buoyed by consistent government contracts and funding.

Companies specializing in smart sensor analytics and those serving security force customers may see enhanced demand, reflecting a secure and growing revenue stream.

Moreover, technological advancements in drone technology and military vehicles cater to both domestic and overseas customers, offering growth opportunities. BAE Systems and other ASX companies involved in armour plate production or priority areas like Australia's ballistics are positioned for strategic partnerships, boosting their market prospects.

On the downside, the defence sector is highly regulated, posing entry and expansion challenges for ASX defence stocks. Ethical considerations may deter some investors, especially those concerned about contributing to militarization.

The sector's reliance on government spending and defence strategic reviews can introduce volatility, with shifts in policy or budget allocations affecting stock performance. Furthermore, the industry faces intense competition for defence contracts, and companies must continually invest in technology development to remain competitive, requiring substantial capital outlay. And finally, investors dreaming of their company being an M&A takeover target should forget about it. The recent bids for Austral (ASX:ASB) depict they are harder to happen, given the likelihood of rejection for national security reasons - even if to companies headquartered in countries not hostile to Australia.

How to Choose the Right ASX Defence Stocks

Selecting the right ASX defence stocks requires evaluating a company's financial health, its alignment with Australian defence priorities, and its technological edge. Look for companies benefiting from Australia's defence spending or those contributing to Australia's strategic defence capabilities.

Consider defence stocks with robust partnerships and contracts with the Australian government and other countries, showcasing their reliability and market trust. Assess their involvement in key defence projects, which indicate a long-term revenue stream. Finally, prioritize companies that invest in technology development and innovation, ensuring they stay ahead in the defence industry and cater to future defence needs.

FAQs on Investing in Defence Stocks

What Are ASX Defence Stocks?

ASX Defence Stocks refer to shares of companies listed on the Australian Securities Exchange that operate in the defence sector, including those involved in manufacturing, technology, and services related to military and defence.

Why Invest in ASX Defence Stocks?

What Are the Risks of Investing in ASX Defence Stocks?

How Can I Start Investing in ASX Defence Stocks?

What Should I Consider Before Investing in ASX Defence Stocks?