Europe's defense companies rise for the fourth day in a row. Which stocks to bet on

The Stoxx Europe Aerospace and Defense index of European arms companies jumped about 3% on Wednesday, January 7, marking its fourth straight day of gains. Shares were pushed up by heightened geopolitical tensions and, in particular, the statement of Danish Defense Minister Trolls Lund Poulsen. He said Copenhagen will spend about $13.8 billion to rearm Greenland due to the "serious security situation."

Shares of European defense companies showed growth in trading on January 7. The profile index Stoxx Europe Aerospace and Defense added about 3%, while the pan-European Stoxx 600 ended the session in a slight negative.

Investors bought securities of French Thales: they rose 8.3%, leading the Stoxx 600 after Samsung's security chip based on a secure OS from Thales won the award for "best innovation in cybersecurity" at the CES 2026 conference in Las Vegas. Shares of Italian arms maker Leonardo jumped 5.1%. Quotes of Saab in Sweden rose about 5%, and the largest manufacturer of heavy machinery and armaments in Europe, the German concern Rheinmetall - by 4.9%.

Markets have become increasingly nervous over US President Donald Trump's renewed threats to annex Greenland, an autonomous territory of Denmark, CNBC explains. In response to the statements from Washington, the Danish Defense Ministry said it would spend DKK 88 billion (about $13.8 billion) to rearm Greenland due to the "serious security situation" in the Arctic and as part of its commitment to NATO. Attention to President Trump's intentions for Greenland is particularly strong following the U.S. military operation in Venezuela, CNBC points out. It led to the overthrow of Nicolas Maduro and the subsequent agreement to transfer Venezuelan oil to the US.

Saxo's Neil Wilson assessed that the US actions demonstrate "a shift towards hard power, rising geopolitical risks and renewed momentum for global and European rearmament."

Goldman Sachs analysts maintain a positive view on the European defense sector, based on the fact that government and military spending will continue to stimulate the growth of corporate profits, reports Bloomberg. The agency recalls that only Germany at the end of last year allocated €50 billion for armored vehicles, anti-aircraft missiles and satellites.

According to Bloomberg's analysis, the European aerospace and defense sector is still trading at a discount compared to its U.S. counterparts on a P/E multiple (ratio of share price to projected annual profit). A possible truce in Ukraine could temporarily cool interest in the sector, warn experts interviewed by the agency. According to Ana Andrade of Bloomberg Economics, the five largest economies in Europe will probably fail to reach the NATO target level for defense spending due to fiscal constraints. Germany retains the best position in this regard, thanks to its lower level of debt - it is the country that can lead the military build-up.

Bernstein analysts advise investors to be selective and bet on "local champions" - companies that will benefit from national military procurement programs. In their opinion, a peace agreement between Russia and Ukraine is unlikely in the near future, although news of a possible ceasefire will influence short-term stock dynamics. "Whether there will be a ceasefire or not, spending is still necessary," Bloomberg quoted Bernstein's note as saying. - Sector fundamentals will be supported by strong order books and rising budgets."

Bernstein forecasts 9% revenue growth for the sector this year, with Rheinmetall's sales likely to accelerate by 40%. Analysts see the greatest upside potential for Rheinmetall, Thales and Leonardo.

According to Michael Field, chief equity strategist at Morningstar, Rheinmetall remains one of the top investment ideas in Europe for 2026, The Wall Street Journal reports.

This article was AI-translated and verified by a human editor