European Defense Stocks Could Come Back All Guns Blazing

European Defense Stocks Could Come Back All Guns Blazing
Stéphane Renevier, CFA

almost 2 years ago1 min

Take a look at the relative performance of US aerospace and defense stocks and their European counterparts, and you’ll see that the former have trounced the latterts for the past eight years. But now that the Russian invasion is threatening peace in the region, things may be about to change pretty dramatically.

In fact, Germany might have just kicked off a new era of military spending in Europe. They’ve announced a €100 billion special fund to modernize Germany’s military, as well as committing to spending 2% of their economic output to the defense sector. With other countries likely to follow suit, the news immediately sent the price of top European aerospace and defense stocks like Rheinmetall (RHM, +29%), Leonardo (LDO, +15%), Thales (HO, +13%), and Chemring (CHG, +13%) soaring.

How much further they can rise is still up for debate, but the chart above suggests prices of European aerospace and defense stocks have moved too far away from their American rivals. And now that there’s now a fundamental rationale for why that gap should close, they could be a much more interesting investment proposition.



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