Europe's defense stock rally is just beginning - Morgan Stanley. Who is he betting on?
European defense stocks remain bullish: the sector has an attractive valuation and encouraging historical dynamics, Morgan Stanley believes. "All the stars have aligned for a strong seasonal recovery," the bank's team of analysts, led by Marina Zavolok, wrote in a note quoted by Bloomberg. - Typically, growth [in this sector] starts late in the year and accelerates in January."
"Best Choice."
The favorite of defense rally and "the best choice" the bank named German concern Rheinmetall, producing tanks and other military equipment. According to forecasts of Morgan Stanley, shares of this manufacturer can rise by more than 50% during the next 12 months. In 2025, the company's market capitalization jumped by almost 170%.
Analysts of investment bank pay attention that positions of investors in the European defense sector remain restrained: 56% of global funds with long positions do not invest in it at all. At the same time, 81% of such funds - both in Europe and in the world - do not have a stake in Rheinmetall, which may indicate space for growth, notes Morgan Stanley.
Context
In trading on December 9, quotations of Rheinmetall added 3.9%, and the whole index of European defense stocks from Goldman Sachs rose by 4%, reports Bloomberg. Investors bought up these securities in anticipation of approval of a new German military spending package, the agency explains. The German parliament next week should consider and, as it is supposed, adopt record contracts totaling €52 billion. Prior to that, the sector's shares were under pressure due to the preparation and discussion of the peace plan on Ukraine, Bloomberg recalls.
Jefferies analysts have suggested that Rheinmetall will be the biggest beneficiary of Germany's new defense order. According to their data, the contract for Puma armored vehicles could bring the company about €2 billion. The investment bank also highlighted shares of defense subcontractors Renk Group and Rolls-Royce, which could benefit from sales of transmissions and engines.
This article was AI-translated and verified by a human editor
