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Unfortunately, the geopolitical landscape has become more complex of late and rife with tension. Conflict hot spots appear more widespread across the globe. We find it noteworthy that 18 NATO members have pledged 2% GDP spending on defense in 2024 vs only 7 members back in 2022.
Below we highlight 5 microcap stocks under Zacks coverage with exposure to defense spending. The companies may be supplying to US defense departments directly or to defense contractors that ultimately sell to both the US government and foreign governments. Investors should be aware that government contracts can be lumpy in terms of revenue conversion and subject to budgetary constraints based on the current political environment.
Optex Systems Holdings, Inc. (OPXS - Free Report) manufactures optical sighting systems mostly for use by the DOD (Department of Defense). These systems have applications for military land vehicles such as the Abrams and Bradley models as well as night vision and rifle sights. Revenue for Optex Systems Holdings, Inc, increased 33.8% YOY in the past quarter while backlog increased 6.3% YOY. Gross Margin improved 540 bps YOY to 30% due to better fixed cost absorption, product mix, and pricing. Zacks has a current Outperform rating for OPXS.
Frequency Electronics, Inc. (FEIM - Free Report) designs and manufactures RF and microwave assemblies for use in satellite payloads, missiles, UAVs, aircraft, GPS, and Electronic Warfare. Revenue grew 20% in the latest quarter for Frequency Electronics, Inc. with Gross Margin improving YOY from 31.1% to 40.3%. Backlog increased 36.8% YOY. Zacks has a current Outperform rating for FEIM.
Servotronics, Inc. (SVT - Free Report) manufactures controls and components for aircraft, jet engines, missiles, and manufacturing equipment. In the latest quarter revenue increased 15.3% for Servotronics, Inc. while Gross Margin improved to 16.6% from 10.9%. Zacks has a current Outperform rating for SVT.
Sypris Solutions, Inc. (SYPR - Free Report) operates in two segments: technologies and electronics. The technologies segment supplies components to the manufacturers of autos, trucks, and recreational vehicles. The parts and services of the electronics segment are incorporated into radar, tactical ground stations, navigation systems, and weapons systems. While the latest quarter revenue increased 10.1% YOY for Sypris Solutions, profitability was negatively impacted by new program launch costs and unfavorable product mix. Zacks has a current Neutral rating for SYPR.
National Presto Industries, Inc. (NPK - Free Report) operates three segments including housewares and small appliances, safety, and defense. Over half of National Presto Industries’ revenue comes from defense and backlog increased 22.8% YOY in the latest quarter. The defense segment manufactures ammunition, detonators, and other military energetic devices and materials. Zacks has a current Neutral rating for NPK.
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5 Microcaps with Exposure to Defense Spending
Unfortunately, the geopolitical landscape has become more complex of late and rife with tension. Conflict hot spots appear more widespread across the globe. We find it noteworthy that 18 NATO members have pledged 2% GDP spending on defense in 2024 vs only 7 members back in 2022.
Below we highlight 5 microcap stocks under Zacks coverage with exposure to defense spending. The companies may be supplying to US defense departments directly or to defense contractors that ultimately sell to both the US government and foreign governments. Investors should be aware that government contracts can be lumpy in terms of revenue conversion and subject to budgetary constraints based on the current political environment.
Optex Systems Holdings, Inc. (OPXS - Free Report) manufactures optical sighting systems mostly for use by the DOD (Department of Defense). These systems have applications for military land vehicles such as the Abrams and Bradley models as well as night vision and rifle sights. Revenue for Optex Systems Holdings, Inc, increased 33.8% YOY in the past quarter while backlog increased 6.3% YOY. Gross Margin improved 540 bps YOY to 30% due to better fixed cost absorption, product mix, and pricing. Zacks has a current Outperform rating for OPXS.
Frequency Electronics, Inc. (FEIM - Free Report) designs and manufactures RF and microwave assemblies for use in satellite payloads, missiles, UAVs, aircraft, GPS, and Electronic Warfare. Revenue grew 20% in the latest quarter for Frequency Electronics, Inc. with Gross Margin improving YOY from 31.1% to 40.3%. Backlog increased 36.8% YOY. Zacks has a current Outperform rating for FEIM.
Servotronics, Inc. (SVT - Free Report) manufactures controls and components for aircraft, jet engines, missiles, and manufacturing equipment. In the latest quarter revenue increased 15.3% for Servotronics, Inc. while Gross Margin improved to 16.6% from 10.9%. Zacks has a current Outperform rating for SVT.
Sypris Solutions, Inc. (SYPR - Free Report) operates in two segments: technologies and electronics. The technologies segment supplies components to the manufacturers of autos, trucks, and recreational vehicles. The parts and services of the electronics segment are incorporated into radar, tactical ground stations, navigation systems, and weapons systems. While the latest quarter revenue increased 10.1% YOY for Sypris Solutions, profitability was negatively impacted by new program launch costs and unfavorable product mix. Zacks has a current Neutral rating for SYPR.
National Presto Industries, Inc. (NPK - Free Report) operates three segments including housewares and small appliances, safety, and defense. Over half of National Presto Industries’ revenue comes from defense and backlog increased 22.8% YOY in the latest quarter. The defense segment manufactures ammunition, detonators, and other military energetic devices and materials. Zacks has a current Neutral rating for NPK.