Red Alert: 3 Defense Stocks to Sell Before They Decline

Rick Orford

December 14, 2023 4 min read

Geopolitical tensions are mounting, and the defense sector is on the rise. While some investors tend to buy into it during these times, others may find it unpalatable to profit from armed conflicts. In addition, investors should always remember that even if the market sentiment sides with the sector, the defense market is still bound to its cyclical, societal, and political dependencies. Furthermore, fundamentals and financials still need to be considered – and that’s how we arrived at these three defense stocks to sell.

While heightened geopolitical tensions or armed conflicts allow the increase in defense spending, it also puts pressure on the uncertainty in the sector. Not only that, but the defense sector’s heavy reliance on government spending can also limit portfolio diversification. Ultimately, while there is money to be made in defense stocks, not all will be your ticket to profit. That is why we think that if you have exposure in the industry, these are the top names that should be on your to-sell list.

V2X, Inc. (VVX)

A photograph of two jet fighters flying above clouds. defense stocks

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V2X, Inc. (NYSE:VVX) is a critical-mission solution provider that supports global defense clients. The company has a comprehensive set of essential service offerings and integrated solutions in the aerospace, logistics, and training operations for civilian, defense, natural security, and international clients.

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VVX has three main segments of operations: advanced technology for design, installation, and integration of systems for security and infrastructure; aerospace solutions for its facilities and engineering; and, lastly, global mission training and sustainment that cover full life cycle capability across the spectrum of support and training solutions.

Despite its strong financial figures and backlogs, its financials showed challenges. The company failed to beat analyst expectations, missing the consensus by 13.1%. Merger costs, amortization, and interest expenses impacted financials. Furthermore, mixed signals from management, like raising low and mid-point revenue full-year projections while lowering adjusted EBIDTA and EPS ranges, don’t incite much confidence. VVX’s challenges in certain integrated electronic security programs have also affected its EBITDA margin. All of these raise a compelling argument as to why VVX should be one of the defense stocks to sell now.

Astronics Corporation (ATRO)

7 Defense Stocks to Buy to Fortify Your Portfolio

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Astronics Corporation (NASDAQ:ATRO) is an advanced solutions provider for the defense, electronics, and aerospace industries. ATRO operates in two main segments: Test Systems, which develop, manufacture, and maintain automated aerospace and defense systems, and the Aerospace Segment, which designs and manufactures products for the aerospace industry worldwide. The company also offers products and services, including electrical power generation and distribution systems, lighting and safety systems, systems certification, automated test systems, and more.

Astronics reported a 24% sales growth in its latest quarter, and its bookings also rose during the last nine months. However, despite its positive numbers, the company still incurred a net loss attributed partly to a customer bankruptcy, resulting in lower non-cash reserves. In addition, its operating margin remained at a deficit of 8.9%. EPS also fell short of estimates and generated a -700% surprise. Its consistent net loss has become a potential concern that can significantly affect the company’s abilities in the future. Because of that, we’re adding it to our recommended defense stocks to sell.

Mercury Systems, Inc. (MRCY)

Gold shield; digital shield, defense, protection

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Mercury Systems, Inc. (NASDAQ:MRCY) is a technology firm that provides the aerospace and defense industry with high-performance, open-architecture products and subsystems utilized in aerospace & defense missions. The company has an end-to-end processing platform that allows its clients to perform aerospace and defense programs optimized for success despite challenging environments. MRCY’s solutions are deployed based on clients’ requirements like surveillance, intelligence, mission computing avionics, electronic warfare, and weapons & missile defense.

MRCY’s latest Q1 report painted a not-so-stellar start for FY2024. With revenues dropping by -20.47% YoY, a GAAP net loss of -$36.7 million, and declining adjusted EPS, there is a compelling argument that the company’s immediate prospects are grim. Mercury Systems hopes to turn things around based on its positive guidance for the full fiscal year 2024. However, with the ongoing challenges in execution, the substantial decrease in adjusted EBITDA, and uncertainties in the market, their prospects don’t match their guidance. This is why we think MRCY is one of the defense stocks to sell before the sector levels out.

On the date of publication, Rick Orford did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Rick Orford is a Wall Street Journal best-selling author, investor, influencer, and mentor. His work has appeared in the most authoritative publications, including Good Morning America, Washington Post, Yahoo Finance, MSN, Business Insider, NBC, FOX, CBS, and ABC News.