Based on key financial metrics such as the price-to-sales ratio, shareholder yield and the price-earnings ratio, the following 4 stocks made the list for top value stocks in the Aerospace & Defense industry. Those looking for value stocks to add to their portfolio may want to use this list as a starting point for further investment research.

Latest Aerospace & Defense Stock News

Before choosing which top Aerospace & Defense stock to buy, be sure to conduct proper due diligence: analyze various financial metrics and look at historical data, public statements and news coverage.

Our fundamental outlook for the Aerospace & Defense (A&D) industry over the next 12 months is neutral. There is expectation for healthy growth in U.S. defense spending to drive strong earnings for defense businesses that make up roughly 65% of sub-industry revenue. Much of this boost will likely be offset by a continued downturn in commercial aerospace, though, with another one to two years still needed for commercial aircraft demand to recover to pre-pandemic levels. In April 2021, President Biden requested a 2% defense budget increase over the record FY 21 budget set under former President Trump. Then in July, the Democrat-controlled Senate Armed Services Committee voted overwhelmingly (23-3) to increase the FY 22 defense budget an even greater amount (+5%) than Biden. This reflects strong bipartisan support for Pentagon initiatives to maintain sea, air, and space superiority. After defense, an estimated 35% of A&D revenues come from commercial aerospace, where slack demand will likely persist through 2022. The pandemic has devastated the subindustry’s airline customers, with U.S. passenger volumes still 20% below prepandemic levels as of mid-August 2021.

Why Focus on Undervalued Aerospace & Defense Stocks?

Value investors seek to buy stocks at a discount to their intrinsic value. Long-term returns show that such strategies are advantageous. Value stocks, as a group, tend to outperform growth stocks over extended periods of time. Typically, value investors perform financial analysis of numerous metrics, don’t follow the herd and are long-term investors.

AAII’s A+ Investor Value Grade is derived from a stock’s Value Score. The Value Score is the percentile rank of the average of the percentile ranks of the price-to-sales ratio, price-earnings ratio, enterprise-value-to-EBITDA (EV/EBITDA) ratio, shareholder yield, price-to-book-value ratio and price-to-free-cash-flow ratio. The score is variable, meaning it can consider all six ratios or, should any of the six ratios not be valid, the remaining ratios that are valid. To be assigned a Value Score, stocks must have a valid (non-null) ratio and corresponding ranking for at least two of the six valuation ratios.

What Goes Into AAII’s Value Grade?

Stock evaluation requires access to huge amounts of data as well as the knowledge and time to sift through it all, make sense of financial ratios, read income statements and analyze recent stock movement. AAII created A+ Investor, a robust data suite that condenses data research in an actionable and customizable way suitable for investors of all knowledge levels, to help investors with that task.

AAII’s proprietary stock grades come with A+ Investor. These offer intuitive A–F grades for more than just value. It is possible for a stock to appear cheap based on one valuation metric but appear expensive on another. It is also possible for one valuation ratio to be associated with outperforming stocks during certain periods of time but not others. Some stocks may even have null values for certain metrics like the price-earnings ratio or the price-to-book ratio but not others. An example of this would be a company with losses instead of profits or a negative book value because of heavy borrowing. Negative earnings or book value result in non-meaningful ratios that are left blank or null.

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4 Undervalued Aerospace & Defense Stocks

Of course, there are countless value stocks that are worth mentioning, but this is a concise list of the top 4 undervalued stocks in the Aerospace & Defense industry for Monday, December 18, 2023. Let’s take a closer look at their individual scores to see how they measure up against each other and the Aerospace & Defense industry median.

The Value Grade is assigned based on how each stock’s composite valuation compares to all other stocks.

The process for assigning grades starts with each variable for a given stock. The percentile rankings for all valid ratios that a stock has are calculated. So, for instance, a stock could have a price-to-book ranking in the 43rd percentile, a price-earnings ranking in the 67th percentile, a price-to-sales ranking in the 23rd percentile, etc. Then, those rankings are averaged for each stock. (A minimum of two valid variables are required, though all six will be used if available.)

Once the average of the individual variables is calculated, that average is ranked against all stocks. Put another way, each stock’s composite valuation is compared to all other stocks. These ranks are then sorted into quintiles from the cheapest 20% (a grade of A) to the most expensive 20% (a grade of F).

As always, we recommend that you conduct proper due diligence and research before investing in any security. We also suggest that investors utilize numerous grades, not just value, when it comes to deciding whether a company is a good fit for their allocation needs.

AERWINS Technologies Inc’s Value Grade

Value Grade:

AERWINS Technologies Inc., formerly Pono Capital Corp, is a developer and manufacturer of air mobility platform, Centralized Operating System for Managing Open Sky (C.O.S.M.O.S.), and the XTURISMO Limited Edition Hoverbike. C.O.S.M.O.S. is a drone monitoring and management platform service. C.O.S.M.O.S. is an unmanned aerial vehicle (UAV), including drones and air mobility platform that enables proper planning, monitoring and management of aircraft condition, and ensures safety of the surrounding environments and operators. XTURISMO Limited Edition Hoverbike is a luxury air cruiser. AERWINS, Inc. is the wholly owned subsidiary of the Company.

Stocks with a Value Score from 81 to 100 are considered deep value, those with a score between 61 and 80 are value and so on.

AERWINS Technologies Inc has a Value Score of 85, which is considered to be undervalued.

AERWINS Technologies Inc’s price-earnings ratio is 0.68 compared to the industry median at 26.43. This means it has a lower share price relative to earnings compared to its peers. This could make AERWINS Technologies Inc more attractive for value investors.

Shareholder yield is the sum of a stock’s dividend yield (paid over previous 12 months minus special dividends) and the percentage of net share buybacks over the previous 12 months. AERWINS Technologies Inc’s shareholder yield is lower than its industry median ratio of (1.32%). Value investors may look for an attractive shareholder yield because it can be a powerful tool for identifying if the company has a good management team.

As one of the most common value metrics, the price-to-book ratio evaluates a company’s current market price relative to its book value. AERWINS Technologies Inc’s price-to-book ratio is lower than its industry median ratio of 2.72. This could make AERWINS Technologies Inc more attractive to investors looking for a new addition to their portfolio.

Butler National Corporation’s Value Grade

Value Grade:

Butler National Corporation designs, engineers, manufactures, sells, integrates, installs, repairs, modifies, overhauls, services and distributes a portfolio of aerostructures, aircraft components, avionics, accessories, subassemblies and systems (Aerospace Products). The Company's segments include Aerospace Products and Professional Services. The Aerospace Products segment includes manufactures, sales and services of structural modifications, electronic equipment, and systems and technologies enhancing aircraft. Additionally, it operates Federal Aviation Administration (the FAA) Repair Stations. The Professional Services segment includes the management of a gaming and related dining and entertainment facility in Dodge City, Kansas. Boot Hill Casino and Resort features approximately 500 slot machines, 16 table games and a sportsbook. It serves a variety of the aviation industry, including owners and operators of private, commercial, regional, business and government aircraft.

Stocks with a Value Score from 81 to 100 are considered deep value, those with a score between 61 and 80 are value and so on.

Butler National Corporation has a Value Score of 83, which is considered to be undervalued.

Butler National Corporation’s price-earnings ratio is 11.8 compared to the industry median at 26.4. This means that it has a lower price relative to its earnings compared to its peers. This makes Butler National Corporation more attractive for value investors.

Butler National Corporation’s price-to-book ratio is higher than its peers. This could make Butler National Corporation less attractive for value investors when compared to the industry median at 2.72.

You can read more about Butler National Corporation’s key financial metrics like shareholder yield, price-to-free-cash-flow and EV/EBITDA ratio, or learn more about its Momentum and Growth Grades, by subscribing to A+ Investor.

Rolls-Royce Holdings PLC (ADR)’s Value Grade

Value Grade:

Rolls-Royce Holdings plc is a United Kingdom-based company that develops and delivers power and propulsion solutions for safety-critical applications in the air, at sea and on land. The Company's segments include Civil Aerospace, Defence, Power Systems, and New Markets. The Civil Aerospace segment is engaged in the development, manufacture, marketing and sales of commercial aero engines and aftermarket services. The Defence segment is engaged in the development, manufacture, marketing and sales of military aero engines, naval engines, submarine nuclear power plants and aftermarket services. The Power Systems segment is engaged in the development, manufacture, marketing, and sales of integrated solutions for onsite power and propulsion. The New Markets segment is engaged in the development, manufacture, and sales of small modular reactors (SMR) and new electrical power solutions. The Company is also engaged in yacht bridges and marine automation.

Stocks with a Value Score from 81 to 100 are considered deep value, those with a score between 61 and 80 are value and so on.

Rolls-Royce Holdings PLC (ADR) has a Value Score of 62, which is considered to be undervalued.

Rolls-Royce Holdings PLC (ADR)’s price-earnings ratio is 14.5 compared to the industry median at 26.4. This means that it has a lower price relative to its earnings compared to its peers. This makes Rolls-Royce Holdings PLC (ADR) more attractive for value investors.

You can read more about Rolls-Royce Holdings PLC (ADR)’s key financial metrics like shareholder yield, price-to-free-cash-flow and EV/EBITDA ratio, or learn more about its Momentum and Growth Grades, by subscribing to A+ Investor.

Ageagle Aerial Systems Inc’s Value Grade

Value Grade:

AgEagle Aerial Systems Inc. is engaged in designing and delivering drones, sensors, and software that solve problems for its customers. The Company is a provider of full stack drone solutions for customers in the energy, construction, agriculture, and government verticals. The Company operates through three segments: Drones, Sensors, and Software-as-a-Service (SaaS). Its Drones segment comprises contractual arrangements to develop, manufacture, and/or modify complex drone-related products, and to provide associated engineering, technical, and other services according to customer specifications. The Sensors segment comprises the sale of sensors, cameras, and related accessories. The SaaS segment offers online-based subscriptions. The Company has business operations in Austin, Texas; Lausanne, Switzerland; Raleigh, North Carolina; Seattle, Washington, and Washington, District of Columbia (D.C.).

Stocks with a Value Score from 81 to 100 are considered deep value, those with a score between 61 and 80 are value and so on.

Ageagle Aerial Systems Inc has a Value Score of 62, which is considered to be undervalued.

Ageagle Aerial Systems Inc’s price-to-book ratio is higher than its peers. This could make Ageagle Aerial Systems Inc less attractive for value investors when compared to the industry median at 2.72.

You can read more about Ageagle Aerial Systems Inc’s key financial metrics like shareholder yield, price-to-free-cash-flow and EV/EBITDA ratio, or learn more about its Momentum and Growth Grades, by subscribing to A+ Investor.

Other Aerospace & Defense Stock Grades

Value is just one of the five Stock Grades included in our A+ Investor service. AAII members can see the top-graded stocks—those with grades of A or B for value, growth, momentum, earnings estimate revisions and quality—on the A+ Stock Grades Screener.

Also, if you want full access to all of AAII’s premium services, you can subscribe to one convenient bundled plan called AAII Platinum where you can try out A+ Investor, AAII Dividend Investing, the Stock Superstars Report, Growth Investing and VMQ Stocks. With the other premium services, you can dive deep into additional metrics, portfolios, commentary and information about Aerospace & Defense stocks as well as other industrys.

Choosing Which of the 4 Best Aerospace & Defense Stocks Is Right for You

Choosing which value stocks to invest in will ultimately depend on your individual goals and allocation; however, comparing similar value stocks in the same industry can help you analyze which might be better investments for you in the long run. So, let’s take a look at the Value Grade for all of our stocks.

• AERWINS Technologies Inc stock has a Value Grade of A.
• Butler National Corporation stock has a Value Grade of A.
• Rolls-Royce Holdings PLC (ADR) stock has a Value Grade of B.
• Ageagle Aerial Systems Inc stock has a Value Grade of B.

Now that you have a bit more background about each of the 4 undervalued stocks in the Aerospace & Defense industry as well as their overall grades, it’s time for you to conduct additional research to see if these could fit your portfolio needs based on your goals and risk tolerance. AAII can help you figure out both and identify which investments align with what works best for you.

We do so through a program of education that teaches you to invest for yourself and become an effective manager of your own wealth—no more relying on others for your financial independence. You can rely on AAII for timeless articles on financial planning and stock-picking, unbiased research and actionable analysis that makes you a better investor.

A+ Investor adds to that qualitative teaching by giving you a powerful data suite that helps you whittle down investment decisions to find stocks, exchange-traded funds (ETFs) or mutual funds that meet your needs.

Additional Resources About Aerospace & Defense Stocks

Want to learn more about Aerospace & Defense stocks to see if they could be the right investment for you? Check out some additional resources and articles to help you on your financial journey.

• 4 Undervalued Aerospace & Defense Stocks for Monday, December 18
• What You Need to Know About AAR Corp's Q1 Earnings
• What You Need to Know About AeroVironment, Inc.'s Q2 Earnings
• What You Need to Know About AerSale Corp's Q3 Earnings

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