European Industrials Poised to Capitalize on Defense Spending
Investors are shifting their focus from traditional defense stocks to industrial companies that stand to benefit from increased military spending in Europe.
Thyssenkrupp, a conglomerate with operations including steel production and defense assets, has seen its shares surge recently. Its defense division, TKMS, is set to be spun off this year and is expected to benefit from higher defense budgets.
BofA Global Research highlights TKMS as an undervalued defense play, valuing it at half of Thyssenkrupp's market capitalization. Other analysts see significant potential in defense-related businesses in Europe.
The recognition of underpriced defense assets may drive share prices upward, supported by higher valuation multiples and rising defense spending.
Beyond pure-play defense companies, Iveco Group and Fincantieri are also positioned to gain from the defense boom.
Investors should exercise selective stock-picking to capture these opportunities, as they may fall outside the scope of passive investment strategies.
Thyssenkrupp's mid-cap status and outperformance this year indicate the trend's potential.
Industrial companies indirectly involved in defense, such as those providing materials or machinery, may also benefit from increased military spending.
As world defense companies continue to trade at higher multiples compared to three years ago, Iveco and Thyssenkrupp offer attractive valuations.