3 Aerospace & Defense Stocks to Invest in Amid Rising Yields

Rising bond yields are creating headwinds for several rate-sensitive areas of Wall Street, but aerospace and defense stocks could remain relatively resilient. The benchmark 10-year Treasury yield recently touched 5.23%, its highest level since June 2007, while the 30-year yield reached 5.55%, as inflation concerns, elevated oil prices and expectations for additional Federal Reserve tightening pressured the bond market.

Against this backdrop, Bombardier Inc.BDRBF, Airbus SEEADSY and Embraer S.A.EMBJ stand out as aerospace and defense stocks that could benefit from this environment.

Defense Spending Provides a Cushion

Aerospace and defense companies can have characteristics that help cushion the impact of higher borrowing costs. Defense contractors often benefit from multi-year government contracts, relatively predictable procurement programs and sustained federal spending. Consequently, their revenue visibility can be less dependent on interest-rate-sensitive consumer or commercial demand.

Global Conflicts Support Defense Demand

The geopolitical backdrop is providing another important catalyst. Conflicts involving the United States and Iran remain unresolved, while tensions across the Middle East continue to influence energy markets and government security priorities. At the same time, governments in the United States, Europe and the Asia-Pacific are increasing defense investments and modernizing capabilities across air, land, sea, cyber and space. Global military spending has climbed to record levels, creating opportunities for defense equipment manufacturers and specialized aerospace suppliers.

Higher yields can therefore create a mixed market environment, but defense spending is driven by strategic and national-security requirements rather than simply by economic growth. BDRBF's business across business aircraft, specialized aircraft and defense-related programs, EADSY's broad commercial and military aerospace portfolio and EMBJ's growing presence in defense aircraft provide exposure to long-term aerospace and defense spending trends.

Our Choices

The stocks below carry a Zacks Rank #2 (Buy). The search was also narrowed down with a VGM Score of A or B. Here, V stands for Value, G for Growth and M for Momentum. The score is a weighted combination of these three metrics. Such a score allows you to eliminate the negative aspects of stocks and select winners. You can see the complete list of today's Zacks #1 Rank stocks here.

Bombardierdesigns, manufactures and services business aircraft, offering a portfolio of private jets alongside specialized aircraft, defense solutions, aircraft maintenance, engineering and aftermarket services for customers worldwide. BDRBF's expected earnings growth rate for the current year is 31.5%. The Zacks Consensus Estimate for its current-year earnings has increased 23% over the past 60 days. This company has a VGM Score of A. Over the past month, BDRBF's stock has risen 4.4%, outperforming the Zacks Aerospace - Defense Equipment industry, which has declined 5.8%.