Nicolas Owens, Industrials Equity Analyst, Morningstar Research Services
Tariff beating stocks may be the best bets for investment for the rest of 2025, here are three from Morningstar Analyst Nicolas Owens.
Nicolas Owens is the Industrials Equity Analyst for Morningstar Research Services, LLC, a wholly owned subsidiary of Morningstar, Inc.
He covers the Aerospace & Defense sector, including Boeing, Airbus, major North American commercial airlines and defense contractors, and key suppliers to the aerospace industry.
“I cover commercial aerospace, defense contractors, and major North American airlines. Included in that are a handful of companies that are suppliers to military and aerospace names — like Hexcel (NYSE:HXL), Heico (NYSE:HEI), and TransDigm (NYSE:TDG).
I’d say the biggest change on my coverage in the last year is that I took over General Electric or GE Aerospace (NYSE:GE) from my colleague who covered it as a conglomerate.
That is the major global franchise in jet engines and that’s more or less all they do anymore because they’ve broken themselves up.
So that’s the biggest recent change in my coverage…
Tariffs are mostly a concern for commercial aerospace, and companies like Bombardier (OTCMKTS:BDRBF) that makes business jets in Canada, and we have yet to see them stick.
So, I haven’t made any changes to my forecast.
And I recently spoke with Bombardier and they haven’t made any changes to how they’re running the business until they know more about what tariffs are going to stick.
Then the third bucket would be — and this certainly has caused investor uncertainty and the stocks to trade down on the defense sector — just uncertainty about budgeting, which is, in a way, normal.
There’s usually some budget uncertainty in the early couple months of the year of a new administration; kind of back and forth with Congress and funding.
But you have an added layer now with Elon Musk and the cost cutting measures under DOGE that people don’t know exactly how, or what, will play out.
Basically, that is one of the major reasons that the defense stocks have traded down recently after having performed quite well for several years.
And we think some of them are looking kind of interesting.
They don’t usually get this cheap.”
The cheap Tariff beating stocks include Huntington Ingalls (NYSE: HII), General Dynamics (NYSE: GD), and Northrop Grumman (NYSE: NOC).
“…Among the cheapest names on my list right now, the very cheapest is Huntington Ingalls (NYSE:HII), which is rated five stars.
And that is likely trading down with the other defense contractors.
So, 99.5% of its revenue comes from the Defense Department, but it also has a specific set of issues around its ability to book revenue in submarine shipbuilding at a profitable rate.
And that is going to be addressed in a new contract that they sign with the Navy, along with General Dynamics (NYSE:GD), sometime this year.
That stock has traded down quite aggressively over the last couple quarterly releases.
The next handful of companies, including Bombardier, which is cheap because of tariffs, are these major defense contractors.
And the two names that I would highlight are Northrop Grumman (NYSE:NOC) and General Dynamics.
They’re both very solid operators with interesting business portfolios.
There’s continued or ongoing uncertainty around defense budgets and the potential changes to how contracting and procurement might evolve under the DOGE or other news.
But the companies say they welcome changes to the defense contracting process.
And I don’t actually believe that the Trump administration is interested in lowering defense spending overall.
We’ve seen some headlines about memos being prepared to look at 8% cuts of the defense budget, but that is just a normal process of identifying programs that might be able to give way to fund other things that the administration wants to do.
I do not expect the net budget to shrink there.
And so, Northrop and GD are interesting because they don’t often get as cheap as they are today.
They could be at an interesting entry point.
I think we’ll know in the next three to six months what some of the fallout, or lack thereof, of these concerns will be.”
Tariff beating stocks are evaluated more on long term contractual demand rather than local wars requiring weapons inventory replenishment. Nicolas Owens identifies these stocks.
“…How investors get excited if we are sending some rockets and artillery shells to Israel or Ukraine doesn’t really track to how these companies make most of their money.
Most of their money comes from long term development contracts, which are things like ballistic missiles, submarines, F35s, long range bombers, that type of blockbuster program.
And the phrase “deterrence” is really important.
The whole idea is if your enemy or the potential aggressor can see what you have and they can see what you’re building, and they will think twice about causing trouble if they see that what you have and what you’re building might be more or stronger than what they have.
And when you’re in a military conflict, the spending shifts or can shift, especially if it’s a prolonged conflict, from long term development projects like the Next-Generation Bomber, to things like munitions, staffing, fuel.
Like, if you look at Desert Storm, they spend enormous amounts just moving gasoline to the front line.
So that’s the risk or the concern that investors should have if there is some kind of prolonged conflict.
And that’s why I said that it’s not cut and dried that military conflict is good for defense contractors.
They make more money more reliably during peacetime developing for peacetime that is, let’s say, prolonged by developing the things that are meant to deter aggression.
And that is the Trump administration’s policy.
They want to end the conflicts in Israel and Europe and they want to continue to build a credible, strong deterrent to, most prominently China as the global near-peer or potential aggressor.”
Read the complete interview to get all the insights and stocks picks from Nicolas Owens of Morningstar.
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