Goldman Sachs Says 3 Aerospace and Defense Stocks May Be the Best Offense in 2022

Incredible as it may seem, just five stocks accounted for 51% of the S&P 500’s return since the end of April, and all of them were mega-cap technology companies. So we at 24/7 Wall St. wondered if it would be a smart move to chase those companies in 2022 when the median price-to-earnings ratio of the top 10 largest U.S. stocks is now as high as it was at the peak of the tech bubble? Most sensible investors would say not, but the reality is that until there is a massive meltdown like in 1928-1929 and 1999-2000, we may see the market continue to grind higher in 2022.

A new Goldman Sachs research report includes the firm’s top picks in the aerospace and defense sector for 2022. Three of the top picks are on the firm’s well-respected U.S. Conviction List of top stocks to buy. They report noted this:

While the pandemic and travel restrictions remain risks, we think 2022 will see the global air travel recovery gather momentum and view the recent sell-off as an opportunity. The business jet and domestic travel recoveries in 2021 clearly show strong demand to fly absent restrictions, and each COVID-19 wave has had a smaller impact on air travel than the prior. That being said, new variants and lockdowns clearly create volatility in aerospace stocks. So in a 2022 travel recovery that is likely lumpy, we think (1) business jets can outperform in many scenarios, (2) aerospace OE normalization is underappreciated, and (3) aerospace aftermarket could be choppy near term despite being a great business long-term.

Nine top stocks are Buy rated and make great sense for investors in 2022, and here we focus on the three on Goldman Sachs Conviction List. It is important to remember that no single analyst report should be used as a sole basis for any buying or selling decision.

Boeing

This stock has sold off recently and is providing a very solid entry point. Boeing Co. (NYSE: BA) is the world’s leading aerospace company and the largest manufacturer of commercial jetliners and military aircraft combined.

The company’s different segments are Commercial Airplanes; Boeing Defense, Space & Security; and Boeing Capital. The latter provides financial solutions facilitating sale and delivery of Boeing commercial and military aircraft, satellites and launch vehicles.

The analysts are very positive on the company and noted this:

As air travel has recovered airlines are increasingly committing to fleet modernization, which we expect to support a continued rebound in new aircraft orders this year. We also see a relatively high likelihood of three catalysts over the next few months that should allow the market to look out to normalized earnings and cash flow, and remove critical overhangs on the stock. Those are (1) China 737 MAX regulatory approval, (2) FAA approval to resume 787 deliveries, (3) an international and business travel acceleration. We see normalized free cash flow per share in the $20s by the mid 2020s.

The analysts see the company posting an estimated 57% sales growth in 2022. The Goldman Sachs price objective for Boeing stock is $305. The consensus target is lower at $260.67, and the shares closed on Monday at $197.40, down almost 4% for the day.

Raytheon Technologies

This stock has backed up recently and offers perhaps the best value in the sector. Raytheon Technologies Corp. (NYSE: RTX) is an industry leader in defense, government electronics, space, information technology and technical services.

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