Best european defense stocks to invest in Q1 2025

The European defense sector is expanding as military budgets rise and demand for advanced security solutions grows. Companies in this space are at the forefront of innovation, supplying cutting-edge defense technologies to global markets.

Rheinmetall specializes in military vehicles, munitions, and electronic defense systems, benefiting from increased European defense spending. Kongsberg Gruppen is a leader in missile systems and naval defense, securing major international contracts. Leonardo DRS develops advanced radar, surveillance, and combat systems, strengthening NATO and allied forces.

These European defense stocks are well-positioned for growth as geopolitical tensions drive higher defense investments. With strong government contracts and innovative technologies, they offer attractive opportunities. As Q1 2025 approaches, consider these top defense stocks for long-term potential.

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Before we dive into each company, let`s take a look at how your investment would have performed if you had invested in top 10 stocks mentioned in this article 5 years ago.

Now, let`s take a closer look at each of the companies:

  • Rheinmetall (RHM)

    Rheinmetall is a leading German defense and automotive technology company known for its advanced engineering and innovation. Established in 1889 and headquartered in Düsseldorf, Germany, Rheinmetall has grown from a munitions manufacturer to a global leader in defense systems and mobility solutions. The company operates across various markets, supplying cutting-edge technologies to governments and industries worldwide while maintaining a strong presence in Europe, the Americas, and Asia.

    Rheinmetall's core business focuses on two major sectors: defense and automotive. In the defense space, the company specializes in armored vehicle systems, weapons, ammunition, air defense systems, and electronic solutions designed for modern combat environments. On the automotive side, Rheinmetall develops high-performance components, including engine systems and emission-reduction technologies, to meet the needs of the evolving mobility sector. With its dual focus, Rheinmetall continues to drive innovation in security and sustainability.

    💡 Why invest in Rheinmetall?

    Several key factors make Rheinmetall an intriguing prospect for investors seeking exposure to the evolving defense and automotive landscapes:

    • Leading Defense Player: Rheinmetall holds a prominent position within the German defense industry, and ranks among the top five arms manufacturers in Europe. This leadership translates into a significant market share and brand recognition within the sector.
    • Diversification Through Automotive: Rheinmetall's presence in the automotive sector offers diversification, mitigating risk by not solely relying on defense spending. This dual-pronged approach provides stability and caters to a broader market.
    • Focus on Innovation: Across both defense and automotive sectors, Rheinmetall prioritizes research and development. They invest in cutting-edge technologies like future combat vehicles and emission reduction solutions, positioning them for future growth.
    • Strong Global Presence: Rheinmetall operates manufacturing facilities and maintains customer relationships around the world. This global reach allows them to capitalize on international markets and mitigate dependence on any single geographic region.

    🐌 Key considerations before investing in Rheinmetall

    While Rheinmetall navigates both the defense and automotive landscapes with its leadership position, diversification, and focus on innovation, there are challenges to consider before deploying your capital:

    • Geopolitical Uncertainty: Global political tensions and conflicts directly impact the demand for defense equipment. Geopolitical instability can lead to increased military spending, potentially benefiting Rheinmetall's defense sector, but also harbors risks like project delays or cancellations.
    • Scrutiny of Defense Spending: Public and political scrutiny of government spending on defense can lead to budget cuts, impacting Rheinmetall's defense sales and profitability. Monitoring political climates and defense spending trends is crucial.
    • Ethical Considerations: The nature of the defense industry raises ethical concerns for some investors. Carefully consider your own investment philosophy regarding companies involved in military technology.
    • Fluctuations in Automotive Industry: The automotive sector is susceptible to economic downturns and fluctuations in raw material costs. These factors can impact Rheinmetall's automotive sales and profitability. Staying informed about industry trends is vital.

    Final thoughts on Rheinmetall

    Rheinmetall's leadership in defense, established presence in automotive, focus on innovation, and global reach paint a potentially promising picture for long-term investors seeking exposure to both sectors. However, the geopolitical uncertainty, scrutiny of defense spending, ethical considerations, and fluctuations in the automotive industry necessitate a cautious approach. Thorough research, analysis of Rheinmetall's future plans in both defense and automotive sectors, and a clear understanding of your risk tolerance are crucial before joining this multifaceted investment expedition. Remember, navigating the intricate terrain of Rheinmetall stock requires both a discerning eye for global trends and a balanced perspective on potential challenges. Choose wisely, and your portfolio might find itself bolstered alongside the success story of Rheinmetall.

  • Kongsberg Gruppen (KOZ)

    Kongsberg Gruppen is a leading Norwegian technology and defense company specializing in advanced systems for the defense, aerospace, maritime, and energy industries. Headquartered in Kongsberg, Norway, the company was founded in 1814, making it one of the oldest industrial enterprises in the country. Over its long history, Kongsberg Gruppen has evolved from a small weapons factory to a global leader in cutting-edge technology, serving both civilian and military markets.

    The company's core business revolves around delivering innovative solutions in areas such as defense systems, autonomous technologies, and maritime operations. Kongsberg's product portfolio includes precision-guided weapons, remote weapon stations, subsea robotics, and advanced simulation systems. With a strong commitment to sustainability and technological excellence, Kongsberg Gruppen supports its customers worldwide in tackling complex operational challenges in demanding environments.

    💡 Why invest in Kongsberg Gruppen?

    Kongsberg Gruppen offers several compelling reasons to consider investing:

    • Diverse Revenue Streams: Kongsberg’s strong presence in defense, maritime, and digital solutions reduces reliance on a single sector and enhances stability.
    • Innovation in Maritime Automation: The company leads in providing autonomous and digital solutions for the maritime industry, addressing increasing demand for efficiency and sustainability.
    • Strong Defense Portfolio: With advanced weapon systems and partnerships with NATO countries, Kongsberg is well-positioned to benefit from global defense spending.
    • Focus on Sustainability: Kongsberg integrates green technologies and energy-efficient systems into its product offerings, aligning with global sustainability goals.

    🐌 Key considerations before investing in Kongsberg Gruppen

    However, prospective investors should weigh the following challenges:

    • Geopolitical Risks: As a defense contractor, Kongsberg is exposed to political and regulatory risks tied to defense spending and international relations.
    • High R&D Costs: The company’s commitment to innovation requires significant investment in research and development, which can pressure margins.
    • Reliance on Key Markets: A substantial portion of Kongsberg’s revenue comes from Europe, making it vulnerable to economic or political instability in the region.
    • Competitive Industry: Kongsberg faces competition from global giants in both the defense and maritime sectors, which may impact its market share.

    Final thoughts on Kongsberg Gruppen

    Kongsberg Gruppen ASA is a technologically advanced and diversified company with strong positions in defense, maritime, and digital industries. Its focus on innovation, sustainability, and partnerships ensures relevance in a rapidly evolving market. However, investors should weigh geopolitical and economic risks alongside the company’s strengths when considering it as an investment opportunity.

  • Leonardo DRS (DRS)

    Leonardo DRS is a prominent U.S.-based defense contractor specializing in advanced technology solutions for military and government customers. Founded in 1969 and headquartered in Arlington, Virginia, Leonardo DRS has established itself as a trusted partner to the U.S. Department of Defense and allied nations. As a subsidiary of the Italian aerospace and defense giant Leonardo S.p.A., the company combines global expertise with localized innovation to deliver cutting-edge systems and services.

    The core business of Leonardo DRS centers around providing mission-critical solutions in areas such as sensor technologies, electronic warfare, intelligence systems, and power and propulsion systems. The company is also a leader in producing next-generation military communication systems and infrared technologies. By focusing on innovation and operational excellence, Leonardo DRS plays a vital role in enhancing defense capabilities and addressing the evolving needs of modern warfare.

    Leonardo DRS financial statements

    Analysts recommendation: 2

    Financial Health

    • Return on assets (ROA): 5.23%
    • Return on equity (ROE): 8.4%
    • Return on investment (ROI): 6.86%

    Profitability

    • Gross margin: 21.64%
    • Operating margin: 9%
    • Net profit margin: 6.23%

    Growth

    • EPS (past 5 years): N/A
    • EPS (current): 0.74
    • EPS estimate (next quarter): 0.35
    • EPS growth (this year): 24.51%
    • EPS growth (next year): 16.47%
    • EPS growth (next 5 years): 18.33%
    • EPS growth (quarter-over-quarter): 19.9%
    • Sales growth (past 5 years): 1.12%
    • Sales growth (quarter-over-quarter): 15.5%

    💡 Why invest in Leonardo DRS?

    Dominant niche, innovation arsenal, governmental trust, and global footprint make DRS a strategic force in the defense investment landscape.

    • Dominant Niche: DRS reigns supreme in naval systems, ground combat, and global satellite networks, offering unparalleled expertise and market share in these crucial defense sectors.
    • Innovation Arsenal: From cutting-edge electro-optical systems to hypersonic technology, DRS invests heavily in R&D, ensuring its arsenal remains future-proof and competitive.
    • Governmental Trust: Deeply embedded within U.S. and allied defense ecosystems, DRS boasts a track record of reliable collaboration and delivery, translating to consistent contracts and revenue streams.
    • Global Footprint: With operations spanning continents, DRS leverages its vast network to tap into diverse defense needs and unlock international growth opportunities.

    🐌 Key considerations before investing in Leonardo DRS

    Valuation concerns, cyclical industry, technological disruption, and geopolitical turmoil are potential roadblocks for DRS investors.

    • Valuation Concerns: Like many established defense players, DRS's stock currently sits near all-time highs, demanding a cautious approach due to potentially limited immediate gains.
    • Cyclical Industry: Defense spending ebbs and flows with geopolitical tides, exposing DRS to potential downturns and necessitating careful analysis of future market projections.
    • Technological Disruption: Emerging technologies and agile startups can disrupt the defense landscape, requiring DRS to constantly adapt and innovate to maintain its competitive edge.
    • Geopolitical Turmoil: International tensions and trade disruptions can impact DRS's supply chains and operations, adding an element of uncertainty to its future performance.

    Final thoughts on Leonardo DRS

    Leonardo DRS's dominance in niche defense sectors, unwavering focus on innovation, and close ties to governments paint a potentially rewarding picture for long-term investors. However, near-peak valuation, the cyclical nature of the defense industry, the threat of disruption, and geopolitical uncertainties warrant a measured approach. Thorough research, analysis of DRS's future plans and market dynamics, and a clear understanding of your risk tolerance are crucial before entering this strategic battlefield. Remember, navigating the intricate terrain of defense stocks requires keen strategic vision and a disciplined investment spirit. Choose wisely, and your portfolio might just emerge victorious amidst the complex tides of global security.

  • Saab AB (OMXSTO:SAAB_B)

    Saab AB is a Swedish defense and aerospace company specializing in fighter aircraft, naval systems, and electronic warfare technologies. The company was founded in 1937 and is headquartered in Stockholm, Sweden. Originally established as an aircraft manufacturer, Saab has since evolved into a global leader in advanced defense and security solutions.

    Saab's core business includes the development and production of military aircraft, such as the Gripen fighter jet, as well as submarines, radar systems, and missile defense technologies. The company also provides electronic warfare solutions, surveillance systems, and cybersecurity services to military and government clients worldwide. With a strong focus on innovation and sustainability, Saab continues to play a crucial role in strengthening defense capabilities across the globe.

    💡 Why invest in Saab AB?

    Saab AB offers several compelling reasons to consider investing:

    • Strong Defense Spending Tailwinds: Global military budgets continue to rise, particularly in Europe, where defense modernization is a priority.
    • Gripen Fighter Jet Demand: The Gripen is a cost-effective and technologically advanced alternative to U.S. and European competitors, securing international defense contracts.
    • Diversified Defense Portfolio: Saab’s expertise spans air, land, and naval defense, reducing reliance on any single product segment.
    • Government and NATO Partnerships: Close ties with European governments and growing NATO collaborations enhance long-term contract stability.

    🐌 Key considerations before investing in Saab AB

    However, prospective investors should weigh the following challenges:

    • Highly Competitive Industry: The defense sector is dominated by major global players like Lockheed Martin, Boeing, and BAE Systems, making contract wins challenging.
    • Dependence on Government Contracts: Revenue relies heavily on military spending, which can be subject to political shifts and budget constraints.
    • Regulatory and Export Risks: International arms sales face strict regulations, geopolitical concerns, and potential trade restrictions.
    • Cyclical Nature of Defense Procurement: Large-scale defense contracts take years to secure and execute, leading to revenue fluctuations.

    Final thoughts on Saab AB

    Saab AB is a key player in the global defense industry, offering cutting-edge fighter jets, naval systems, and electronic warfare solutions. Its diversified portfolio and increasing defense budgets provide strong growth potential. However, intense competition, reliance on government contracts, and regulatory challenges should be considered when evaluating an investment in the company.

  • Hensoldt AG (HAG)

    Hensoldt is a German defense technology company specializing in sensor solutions, radar systems, and electronic warfare technologies. Founded in 2017 as a spin-off from Airbus Defence and Space, the company is headquartered in Taufkirchen, Germany. With a strong presence in the global defense and security sector, Hensoldt provides advanced surveillance and reconnaissance systems for military and civilian applications.

    The company’s core business revolves around the development of high-performance radar, optronics, and avionics systems. Hensoldt supplies critical technologies for fighter aircraft, naval vessels, and ground-based defense systems, enhancing situational awareness and threat detection. Additionally, the company is investing in cybersecurity and AI-driven defense solutions, positioning itself as a key innovator in modern security and surveillance technologies.

    💡 Why invest in Hensoldt AG?

    Hensoldt offers several compelling reasons to consider investing:

    • Strong Defense Industry Position: A key supplier of advanced sensor and radar systems to European and NATO defense programs.
    • Growing Defense Budgets: Increasing military spending in Europe and worldwide supports long-term demand for its products and services.
    • Technological Innovation: Focuses on cutting-edge defense electronics, cybersecurity, and artificial intelligence-driven surveillance solutions.
    • Strategic Partnerships: Collaborates with major defense contractors and government agencies, securing long-term contracts and stable revenue streams.

    🐌 Key considerations before investing in Hensoldt AG

    However, prospective investors should weigh the following challenges:

    • Dependence on Government Contracts: A large portion of revenue comes from defense contracts, making it vulnerable to political and budgetary changes.
    • Geopolitical Risks: Exposure to international defense markets subjects the company to export restrictions, regulatory hurdles, and shifting alliances.
    • Competitive Industry: Faces competition from larger defense firms such as Thales, Leonardo, and Raytheon Technologies.
    • Market Volatility: As a relatively new publicly traded company, its stock price can be affected by defense sector fluctuations and investor sentiment.

    Final thoughts on Hensoldt AG

    Hensoldt is a key player in the European defense technology sector, benefiting from rising defense budgets, strong industry partnerships, and technological expertise. However, its reliance on government contracts, geopolitical uncertainties, and competitive pressures pose investment risks. Investors seeking exposure to the growing defense and security industry should weigh these factors carefully.

  • Dassault Aviation (TURQUOISE:AMP)

    Dassault Aviation is a French aerospace company known for its high-performance military and business aircraft, including the Rafale fighter jet and Falcon business jets. The company was founded in 1929 by Marcel Dassault and is headquartered in Saint-Cloud, France. With decades of expertise, Dassault has established itself as a leader in both defense and civilian aviation.

    Dassault Aviation’s core business revolves around the design, development, and production of advanced military aircraft, such as the Rafale, a multi-role combat jet used by several air forces worldwide. In addition, the company manufactures the Falcon series of business jets, known for their luxury, efficiency, and cutting-edge avionics. Dassault is also deeply involved in aerospace innovation, focusing on next-generation fighter jets, unmanned systems, and digital flight technologies to maintain its position as a global aerospace leader.

    💡 Why invest in Dassault Aviation?

    Dassault Aviation offers several compelling reasons to consider investing:

    • Strong Military Contracts: The Rafale fighter jet continues to secure international defense deals, boosting revenue and long-term growth.
    • Resilient Business Jet Market: The Falcon series benefits from rising demand in the private aviation sector, particularly among high-net-worth individuals and corporations.
    • Cutting-Edge Aerospace Technology: Dassault is known for its innovation in avionics, stealth capabilities, and digital engineering, strengthening its competitive edge.
    • Global Defense Partnerships: Collaborations with NATO allies and strategic partnerships enhance its geopolitical influence and contract stability.

    🐌 Key considerations before investing in Dassault Aviation

    However, prospective investors should weigh the following challenges:

    • High Dependence on Government Contracts: A significant portion of revenue relies on defense spending, which can be influenced by political and budgetary shifts.
    • Intense Industry Competition: Faces strong competition from global aerospace giants like Lockheed Martin, Boeing, and Airbus in both military and business aviation.
    • Cyclical Demand for Business Jets: Economic downturns can impact corporate and private aviation spending, affecting Falcon jet sales.
    • Regulatory and Export Challenges: International arms sales and aircraft exports are subject to stringent regulations and geopolitical risks.

    Final thoughts on Dassault Aviation

    Dassault Aviation is a powerhouse in both military and business aviation, with its Rafale fighter jet and Falcon business jets leading their respective markets. Its innovation-driven approach and strong defense contracts provide solid growth opportunities. However, reliance on government contracts, industry competition, and regulatory risks should be factored into any investment decision.

  • Thales (GETTEX:CSF)

    Thales is a global leader in advanced technologies, specializing in aerospace, defense, security, and digital identity solutions. Founded in 2000 and headquartered in Paris, France, the company has a rich history rooted in the merger of Thomson-CSF and Racal Electronics. With operations in over 68 countries and a workforce of more than 80,000 employees, Thales delivers innovative solutions to governments, businesses, and organizations worldwide.

    The company’s core business focuses on developing technologies that enhance safety, security, and efficiency across various sectors. Thales is renowned for its contributions to air traffic management, cybersecurity, defense systems, and space technologies. By investing heavily in research and development, the company continues to drive innovation in areas like artificial intelligence, big data, and quantum technology, helping its clients address complex challenges in an ever-evolving global landscape.

    💡 Why invest in Thales?

    Several factors make Thales an attractive investment in the technology sector:

    • Technological Leader: Thales boasts a strong presence across aerospace, defense, transportation, and security, offering a diversified portfolio of innovative solutions.
    • Global Reach: They operate in over 100 countries, making their life-saving technologies accessible to a global population.
    • Focus on R&D: Their commitment to research and development fuels a steady pipeline of innovative products, ensuring future growth and addressing unmet needs.

    🐌 Key considerations before investing in Thales

    The technology sector presents its own set of challenges:

    • High Development Costs: Research and development for new technologies can be expensive and time-consuming, with no guarantee of success.
    • Rapid Technological Change: The constant evolution of technology can quickly render existing products obsolete, requiring continuous adaptation.
    • Geopolitical Dependence: Defense spending and international relations can impact Thales' business depending on global security landscapes.

    Final thoughts on Thales

    Thales' strong market position, diverse portfolio, and focus on R&D paint a potentially promising picture for long-term investors seeking exposure to the ever-evolving technology sector. However, the high costs of development, rapid technological shifts, and geopolitical dependence necessitate a cautious approach. Thorough research, analysis of Thales' innovation pipeline and strategies for navigating challenges, and a clear understanding of your risk tolerance are crucial before adding Thales to your portfolio. Remember, the future is shaped by technology. Thales' ability to deliver cutting-edge solutions will be key to its continued success. Choose wisely, and your portfolio might find itself at the forefront of innovation alongside the Thales story.

  • BAE Systems (BA.)

    BAE Systems is a leading global defense, aerospace, and security company, providing advanced technologies and services to governments and commercial customers worldwide. Founded in 1999 through the merger of British Aerospace and Marconi Electronic Systems, the company is headquartered in Farnborough, United Kingdom. With operations spanning over 40 countries, BAE Systems is a key player in the global defense industry, known for its commitment to innovation and engineering excellence.

    The core business of BAE Systems focuses on designing, developing, and manufacturing advanced defense systems, including naval ships, combat vehicles, military aircraft, and cybersecurity solutions. The company is a major supplier of electronic warfare and intelligence systems, as well as guided weaponry and ammunition. By leveraging cutting-edge technologies and strategic partnerships, BAE Systems plays a pivotal role in enhancing national security and enabling military forces to address evolving global challenges.

    💡 Why invest in BAE Systems?

    Several key factors make BAE Systems an attractive prospect for investors seeking exposure to the ever-evolving defense and aerospace sectors:

    • Global Defense Leader: BAE Systems stands as the largest defense contractor in Europe and one of the top players worldwide. This leadership position translates into a significant market share and brand recognition within the global defense industry.
    • Focus on Advanced Technology: BAE prioritizes research and development, constantly innovating in areas like fighter jets, cyber defense, and unmanned aerial vehicles (UAVs). This focus on cutting-edge technology ensures BAE remains at the forefront of defense capabilities.
    • Diversified Portfolio: BAE doesn't limit itself to a single area of defense. It offers a comprehensive suite of products and services across air, land, sea, and cyber domains, mitigating risk by catering to various defense needs.
    • Strong Customer Relationships: BAE fosters long-term relationships with government agencies and armed forces around the world, ensuring a steady stream of demand for its products and services. This customer focus bodes well for the company's future profitability.

    🐌 Key considerations before investing in BAE Systems

    While BAE Systems navigates the dynamic defense landscape with its leadership position, focus on innovation, and strong customer relationships, there are some challenges to consider before enlisting in this investment opportunity:

    • Geopolitical Uncertainty: Global political tensions and conflicts directly impact the demand for defense equipment. Geopolitical instability can lead to increased military spending, potentially benefiting BAE, but also harbors risks like project delays or cancellations.
    • Scrutiny of Defense Spending: Public and political scrutiny of government spending on defense can lead to budget cuts, impacting BAE's sales and profitability. Monitoring political climates and defense spending trends is crucial.
    • Ethical Considerations: The nature of the defense industry raises ethical concerns for some investors. Carefully consider your own investment philosophy regarding companies involved in military technology.
    • Competition Heats Up: The defense sector is a competitive landscape, with established players and emerging companies vying for government contracts. Staying informed about industry trends and BAE's strategies for maintaining its competitive edge is vital.

    Final thoughts on BAE Systems

    BAE Systems' leadership position in the defense sector, focus on innovation, diversified portfolio, and strong customer relationships paint a potentially promising picture for long-term investors seeking exposure to the defense and aerospace industries. However, the geopolitical uncertainty, scrutiny of defense spending, ethical considerations, and rising competition necessitate a cautious approach. Thorough research, analysis of BAE's future plans and the global defense landscape, and a clear understanding of your risk tolerance are crucial before joining this military technology expedition. Remember, navigating the intricate terrain of defense contractor stocks requires both a discerning eye for geopolitical trends and a balanced perspective on potential challenges. Choose wisely, and your portfolio might just find itself fortified alongside the success story of BAE Systems.

  • Babcock International Group (BW3)

    Babcock International Group is a British multinational company specializing in defense, aerospace, and nuclear engineering services. Founded in 1891 in London, United Kingdom, it has grown into a key provider of complex engineering solutions for government and commercial clients. The company is known for its expertise in managing critical assets and infrastructure across various industries.

    Babcock’s core business focuses on providing support services for defense, emergency services, and nuclear power sectors. It is a major supplier of naval shipbuilding and maintenance, submarine support, and military training solutions. Additionally, the company plays a significant role in aviation operations, offering fleet management and mission-critical services for air forces and civil organizations. With a strong presence in the UK and international markets, Babcock is dedicated to innovation and technological advancements in engineering and defense solutions.

    💡 Why invest in Babcock International Group?

    Babcock International Group offers several compelling reasons to consider investing:

    • Strong Defense Contracts: Long-term government contracts, particularly with the UK Ministry of Defence, provide revenue stability and predictability.
    • Diverse Business Segments: Operations in defense, emergency services, and nuclear engineering offer multiple revenue streams, reducing reliance on a single market.
    • Restructuring and Cost Efficiency Efforts: Recent business restructuring has improved financial performance by reducing debt and enhancing operational efficiency.
    • Global Expansion Potential: Growing international partnerships, including contracts with NATO and allied nations, create opportunities for long-term growth.

    🐌 Key considerations before investing in Babcock International Group

    However, prospective investors should weigh the following challenges:

    • Exposure to Government Budgets: Heavy reliance on government contracts means revenue can be impacted by defense spending cuts and policy changes.
    • Operational Challenges: Past financial struggles and restructuring efforts highlight risks in cost management and project execution.
    • Regulatory and Compliance Risks: Working in defense and nuclear sectors involves strict regulations, which can increase operational costs and complexity.
    • Competition from Larger Defense Contractors: Faces competition from global defense giants, which may limit its ability to secure larger international contracts.

    Final thoughts on Babcock International Group

    Babcock International Group remains a vital player in defense and engineering services, benefiting from strong government contracts and diversified business operations. While restructuring efforts have improved financial health, risks related to government spending, regulatory challenges, and competition should be considered. Investors seeking exposure to the defense sector should weigh these factors before making an investment decision.