Top 3 Aerospace and Defense Stocks Flying Under the Radar

In the final weeks of 2024, so-called electric vertical takeoff and landing (eVTOL) companies like Archer Aviation Inc. ACHR have dominated the headlines. Archer and some of its rivals are racing to bring to market an affordable, convenient lineup of air mobility products. Whichever company—or companies—can successfully meet regulatory requirements and launch eVTOL aircraft on a significant scale is likely to reap the benefits of an anticipated new market surrounding air taxis.

Though these eVTOL firms have captured investor attention, there are a number of other aerospace and defense companies that are worth taking note of heading into 2025. These firms may have less glamorous projects in the works or—in the case of rival eVTOL companies—may not have experienced a share price rally in recent months. The fact that these companies are under the radar may make them all the more attractive to investors looking to avoid jumping on the bandwagon with their investments.

The aerospace and defense industry is expected to grow considerably in the coming quarters, thanks in large part to ongoing geopolitical tensions that prompted about $2.4 trillion in global defense spending in 2023. Mounting interest in commercial airline travel after the COVID-related plunge in business and since inflation has settled is another factor likely to boost companies in this industry.

Ducommun: Stellar Q3 Performance and Signs of Being Undervalued

Ducommun Inc. DCO builds electronic and structural systems used in a variety of aerospace and defense applications as well as in other industries. For the latest quarter, revenue topped $200 million for the first time ever, led in part by Ducommun's military and space business. The firm topped analyst expectations for EPS and EBITDA for the quarter.

Fueling Ducommun's recent growth has been a number of major contracts with defense firms like RTX Corp. RTX, formerly Raytheon. Ducommun entered into multiple contracts with RTX in 2024, totaling about $50 million.

Despite this strong performance, Ducommun shares are up just under 22% in the year leading to December 13, 2024, meaning that the firm is slightly behind the S&P 500 in its pace of growth. Ducommun has a P/S ratio of 1.2 and a forward P/E ratio of 19.4, which is competitive for the industry, suggesting that it may have room to continue to grow and, perhaps eventually, outpace the broader market.

Eve Holding: eVTOL Firm Quietly Working Toward Testing

A lesser-known eVTOL company, Eve Holding Inc. EVEX, is just over a third of the size of Archer Aviation by market capitalization as of December 13, 2024. While Eve does not have the backing of a major automotive company like its rival Archer, it nonetheless has secured funding from Brazil's National Development Bank as well as a major loan from Citibank to support R&D efforts. These additions brought the company's total cash, cash equivalents, and financial investments to about $280 million as of the end of the third quarter, helping to improve its liquidity.

Perhaps more importantly, Eve is getting closer to being able to bring a vehicle to market. The company completed an engineering prototype in July, and since that time, Eve has run the prototype through an extensive series of tests in the hopes of further progress toward regulatory approval.

Eve is currently rated a Buy according to reviews by three Wall Street analysts. As of December 13, it has about 27% upside potential—however, it's noteworthy that much of this may have come from the company's share price declines, which have sent shares downward by about 32% in the past year. Investors taking a bullish view of Eve's prospects amid a shifting regulatory landscape in 2025 may find that the company presents an attractive value offer and a buying opportunity prior to that time.

EHang: Ambitious Production Plans for a Major Player in China

Chinese unmanned aerial vehicle (UAV) firm EHang Holdings Ltd. EH provides logistics, products, and services related to eVTOLs. It is a major competitor in China, where it has secured the first type certificate, production certificate and standard airworthiness certificate for passenger-carrying pilotless eVTOL aircraft issued by the government.

For EHang, the most recent quarter was a busy one of progress toward completing the mechanical and regulatory hurdles necessary to bring a vehicle to market. For example, the company made significant progress earlier in 2024 on a solid-state battery that increased flight endurance by over 90%.

EHang's orders list continues to grow, with businesses primarily in China taking advantage of its custom systems and tools. As of the end of the quarter, the company said it had a backlog of roughly 1,000 EH216-S products—EH216-S is the company's two-person eVTOL multicopter.

Despite falling by 14% in the year leading to December 6, EHang is still rated a unanimous Buy, according to three Wall Street analysts. Like EVEX above, the price of EH shares has fallen in the last year, although by a more modest percentage than EVEX. This is part of the reason why EH shares have an upside potential of more than 61%. However, all will hinge on the company's ability to follow through on its production model goals.

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