Woodward's Record Results Set The Stage For Breakout; Musk's F-35 Jabs Shake Defense Stocks

In the dynamic world of defense stocks, one name stands out for its stellar performance: Woodward (WWD). The aerospace and industrial conglomerate recently reported record results for 2024, positioning itself for a breakout, while Elon Musk's taunts towards F-35 manufacturers have caused ripples in the sector. Let's delve into Woodward's impressive performance and the broader implications of Musk's remarks on defense stocks.

Woodward, the manufacturer of energy control systems and defense parts, has had a remarkable year. The company posted a 14% increase in revenue to $3.32 billion, with a staggering 45% increase in earnings to $6.11 per share. This outstanding performance was driven by robust demand across its aerospace and industrial segments.

In the aerospace sector, Woodward benefited from increased commercial and defense OEM sales due to capacity improvements, while defense aftermarket sales rose due to high aircraft utilization. The industrial segment also performed exceptionally well, with broad-based growth in power generation and marine transportation. Looking ahead, Woodward expects continued strength in commercial markets and increased defense activity to drive revenue and margin expansion in 2025.

The company's record results and elevated guidance have set the stage for a breakout. Woodward stock is set to clear a 180.14 handle buy point and may experience a breakaway gap buying opportunity if it opens above the 5% buy range from that buy point. Investors should aim to buy as close to the opening price as possible, with the high of the first five-minute range becoming the new buy point if shares trade above the opening price.

Meanwhile, Elon Musk's criticism of F-35 fighter jets has created headwinds for defense stocks. The Tesla CEO, also co-head of President-elect Donald Trump's Department of Government Efficiency, took to his social media site X to ridicule the F-35, sharing videos of autonomous, coordinated drone swarms and asserting that manned fighter jets are obsolete. However, defense experts and military leadership disagree with Musk's assessment, contending that drones and fighter jets fulfill different mission roles. Drones are primarily utilized for short to medium-ranged engagements and surveillance, while modern fighter jets fill irreplaceable roles such as intercepting enemy bombers and launching operations from thousands of miles away.

Despite Musk's influence in budget cuts, defense stocks' long-term prospects remain robust. Bernstein analyst Douglas Harned still expects defense stocks to do well under Trump, as he seeks a strong defense. Investors should consider balancing growth and value stocks, including under-owned energy stocks, to mitigate risks associated with Musk's influence.

In conclusion, Woodward's record-breaking performance has positioned it for a breakout, while Musk's criticism of F-35 manufacturers has caused temporary tremors in the defense sector. Investors should focus on the enduring strength of defense stocks like LMT, NOC, and RTX, while remaining vigilant to the potential impact of Musk's influence on budget cuts. A balanced investment strategy, combining growth and value stocks, will help investors capitalize on the long-term prospects of the defense sector.