Defense Social Media and Updates

Short‑Term Losses Mask Long‑Term Defense Innovation Gains

Given reports this week that Pete Hegseth tried to buy defense stocks prior to launching the Iran war, much attention has been paid to the failure of that trade. The index he attempted to buy, IDEF, has fallen ~13% over the past month. In my new report on "Defense Innovation" (https://t.co/rRtYxEUTE9), I explore the opportunity I see in that market reaction. To quote the report: "We expect short-term-oriented markets to frequently lose sight of the long-term defense opportunity. Enthusiasm will fluctuate as market participants are whipsawed by a turbulent news cycle." And here's a bit more that's specific to the Iran war stock reaction: "The US fired 168 Tomahawk missiles within the first 100 hours of its bombing campaign against Iran. That was after it had already fired at least 124 Tomahawks at Iran's nuclear facilities and the Iranian regime's proxies in Yemen in 2024 and 2025. Over the past five years, the DoW had purchased just 322 Tomahawks at an estimated cost of $3.6 million per missile. This year, the US Navy had only planned to buy 57 Tomahawks. In the days after the war began, it was reported that defense companies had agreed to quadruple production of “exquisite class weapons” like Tomahawks in response to a direct request from President Trump. Yet, as of writing this, RTX—the maker of Tomahawks—had seen its stock barely budge since the war began, even declining post March 2nd (the first trading day after the war began). The same can be seen across legacy defense, with the ITA ETF underperforming the S&P 500 by roughly 4% between the start of the war and March 23rd. Valuation concerns are likely contributing to that muted response. As Morningstar noted in mid-March: “ITA currently trades at 39 times projected 12-month earnings, above its 10-year average of 25. The S&P 500, meanwhile, is trading at a multiple of 21, above its 10-year average of 20.” Yet, there’s more at play than just valuations. To quote a Barron’s article written a week and a half after the war began: 'Active fighting seems to be a key ingredient in higher defense stock prices. The stock market, however, is forward-looking; buy the rumor and sell the news, as the saying goes. With the conflict now under way, investors’ minds have likely shifted to what happens next…'Investors we speak to believe the fact that it’s a midterm election year will constrain the outlook for defense stocks if this conflict lasts longer than expected and/or weighs on voter sentiment,' wrote Citi analyst John Godyn in a recent report. 'We appreciate that the stocks are sensitive to the US political cycle, but believe that many of the megatrends in place go beyond the normal budget cycle debate.'" How should investors position to maximize the long-term opportunity of accelerating global defense spending? It's a question I answer in the report. Learn more about Sage Road research here: https://t.co/Wgwz2xnvR6. Interested in subscribing? Message me.