What happened
In contrast to yesterday, when defense stocks of all stripes moved in only one direction -- up -- Russia's continuing attack on Ukraine had divergent effects on defense stocks today. By the time the closing bell rang, shares of defense hardware giant Lockheed Martin (LMT 1.23%) had gained 5.3% and Palantir Technologies (PLTR 0.56%) -- a powerhouse of the defense IT industry -- was up 3%.
In contrast, Boeing (BA 1.51%), maker of F-15 Strike Eagles fighter jets for the Air Force and F-18 Super Hornets for the Navy, saw its stock plunge 5.1%. Why is that?
Image source: Getty Images.
So what
At last report, more than one dozen NATO member states had announced plans to send military aid to Ukraine. The total amount of military equipment being sent -- both lethal and non-lethal -- now stretches into the billions of dollars, versus less than just $1 billion that had been promised prior to Russia's Feb. 24 invasion.
But even those billions in military equipment being shipped to Ukraine pale in significance to the tens of billions of dollars that now stand to be poured into the enlarged defense budgets of NATO members back home. Just this past weekend, Germany announced plans to triple its defense spending in 2022, by adding $112 billion in supplemental spending. Furthermore, Germany committed to raising its ongoing defense spending to in excess of 2% of GDP -- which on a $3.8 trillion economy implies that Germany will grow defense spending to $76 billion annually going forward -- about a 50% permanent increase.
Now what
As more and more NATO countries follow in Germany's footsteps, I suspect we will see a tidal wave of new investment in defense all across Europe -- tens of billions of extra defense dollars spent every year going forward. It makes sense, therefore, that investors would be betting today that Lockheed, Palantir, and Boeing would benefit from all that spending.
(Indeed, when this morning equity research firm Wolfe Research upgraded Lockheed Martin stock to outperform, it also took the opportunity to upgrade the entire defense sector to overweight, as TheFly.com reports.)
The more interesting question today is why Boeing is not benefiting from this positive sentiment?
Granted, Boeing's not a pure-play defense business like Lockheed is. But at $26.5 billion in annual revenue, Boeing's defense, space, and security business is certainly big enough -- even if Lockheed's defense business is two times bigger.
Granted, too, Boeing announced last night that it has had to close its offices in Kyiv and "pause" Boeing airplane training at its Moscow campus in reaction to, respectively, attacks on Kyiv and sanctions against Russia. Such moves reinforce the notion that Boeing's commercial airplanes business will take a hit from this conflict that the more defense-oriented Lockheed will not suffer.
But even so, I suspect that the rearmament of Europe is a big enough trend that it should be giving Boeing stock a lift as well as Lockheed Martin. Were it not for the fact that Boeing stock already looked overpriced relative to Lockheed Martin going into this conflict, I might even be tempted to call today's sell-off a buying opportunity for Boeing stock.
