ASX Stocks Set to Benefit From the $7B Missile Deal with the US
By Dale Gillham and Fil Tortevski |
Australia’s defence budget has taken a significant leap with the government's recent announcement of a $7 billion missile deal with the United States. This deal underpins Australia’s commitment to modernising its military, focusing on missile defence, cybersecurity, and space technologies. With such a major investment, it raises the question: which ASX stocks stand to benefit from this surge in defence spending?
Which ASX listed companies are likely to surge?
Before diving into specific stocks, it’s important to put the $7 billion deal into context. Australia’s defence budget has been on the rise, currently at about 2.02 per cent of GDP, with a target to reach 2.3 per cent by 2033-34. While this is smaller than the US (3.4 per cent) and China (1.7 per cent) relative to their GDP, Australia’s investment in advanced, high-tech solutions is steadily growing, indicating continued expansion in the defence sector over the next decade.
This missile deal, along with the expected growth in defence spending, opens significant business opportunities for Australian defence companies through government contracts including international customers. So, which companies should be on your radar?
Electro Optic Systems (EOS)
Specialising in space and missile defence systems, EOS is well-positioned to benefit from increased government funding. The company has already secured several contracts and its stock price has surged 400 per cent since March 2023. Currently trading between $1.20 and $1.80, a breakout above $1.80, especially with new funding news, could signal a strong bullish trend.
Austal Limited (ASB)
As a leading defence shipbuilder, Austal stands to gain from the government’s focus on naval capabilities, particularly in missile-equipped vessels. The company was recently awarded a $670 million contract, pushing its stock price above a key resistance level at $2.80. While a short-term retest of that level is possible, Austal may be on track to challenge its all-time high of $4.99.
Codan Limited (CDA)
Specialising in communication systems, Codan is well-positioned to benefit from rising demand both domestically and internationally as defence infrastructure and secure military communications are upgraded. The stock has demonstrated impressive growth since 2022, gaining over 300 per cent. With only about 20 per cent remaining before it reaches its all-time high. Therefore, waiting for a pullback could present a safer buying opportunity for medium to long-term investors.
What were the best and worst-performing sectors last week?
The best-performing sectors included Consumer Staples, up 0.02 per cent, followed by Communication Services down 0.11 per cent and Financials down 0.13 per cent. The worst-performing sectors included Information Technology, down 3.98 per cent, followed by Industrials, down 2.15 per cent and Consumer Discretionary, down 2.13 per cent.
The best performing stocks in the ASX top 100 included Qantas Airways, up 8.96 per cent, followed by Northern Star Resources, up 7.08 per cent and Resmed, up 5.86 per cent. The worst-performing stocks included Mineral Resources, down 25.60 per cent, followed by Newmont Corporation, down 16.23 per cent, and Reece Limited, down 10.76 per cent.
What's next for the Australian stock market?
With the All Ordinaries index down over one per cent last week, the long-awaited sellers have finally arrived, just in time for Halloween. While market declines are rarely welcomed, as I mentioned in my previous report, healthy selling is crucial for sustainable long-term growth.
As such, I expect the All Ord's to continue with short-term selling over the next week or two, potentially finding support between 8,300 and 8,100 points. If the declines intensify, particularly with the volatility expected as we near the US election, support around the 8000-point level may come into play.
What was particularly interesting last week was the Financial Sector breaking through to a new all-time high, signaling that its stellar run since the start of the year still has momentum. If you think financials have run out of steam, think again. Betting against strong trends can be risky while riding them out often presents some of the best trading opportunities. Therefore, it could be a good time to revisit the sector and identify stocks poised for further gains.
Also remember that downside volatility is common in October, so don’t be too quick to close out positions that may be stalling for now. Historically, post-US election price movements have offered strong upside momentum, which could bring more gains in the near future.
For now, good luck and good trading.
Dale Gillham is the Chief Analyst at Wealth Within and the international bestselling author of How to Beat the Managed Funds by 20%. He is also the author of the bestselling and award-winning book Accelerate Your Wealth—It’s Your Money, Your Choice, which is available in all good bookstores and online.