Raytheon Technologies (NYSE:RTX) is an aerospace and defense company that recently merged with United Technologies. Shares of Raytheon have dropped 55% over the past three months as of close on April 29. Raytheon’s sizable aerospace division sparked skepticism from investors in the month of March.
Few sectors have been hit as hard as aerospace due to the COVID-19 pandemic. Air travel demand has cratered with lockdowns emerging all over the world. This has caused orders to sink for aerospace companies, which will hurt Raytheon and others in the near term. However, there are reasons for optimism as well.
According to the Stockholm International Peace Research Institute (SIPRI), the world’s nations spent a combined $1.9 trillion on their militaries in 2019.
That represented a 3.6% increase from 2018. This was also the highest level of global military spending since the 2008 financial crisis. The United States recorded a 5.3% increase from 2018 to 2019 – up to $732 billion.
Experts from the SIPRI expect expenditures have peaked, at least in the near term. This is in large part due to the ongoing global financial crisis.
However, investors should not expect spending to be curbed in a major way. On the contrary, increased tensions between the U.S. and China will spur both countries to invest in their militaries even in the face of crisis.
This is true for other big spenders in this multi-polar geopolitical climate.
Because of this, investors should consider buying the dip in Raytheon. The stock possesses a favourable price-to-earnings ratio of 10 and a price-to-book value of 2.4.
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