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Investors are speculating that international tensions will spur increased defense spending.
President Trump wants to boost the nation's 2027 defense budget to $1.5 trillion.
Shares of AeroVironement are trading at a premium to their historic valuation.
With its rise today, AeroVironment (NASDAQ: AVAV) stock extended its streak of locking in a gain every day this week. In addition to investors' suspicions that international political tensions will remain high, President Trump's commentary on the nation's defense budget is providing investors with motivation to click the buy button on shares of defense contractors that specialize in drone technology.
According to data provided by S&P Global Market Intelligence, AeroVironment stock has increased by 33.3% from the end of trading last Friday to the close of today's market session.
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Image source: Getty Images.
With the military action in Venezuela that the United States engaged in last weekend, investors are speculating that global tensions will remain high between nations. During times like these -- periods of heightened international tensions -- it's common for investors to turn to defense stocks, such as AeroVironment, believing that nations will increase their defense spending.
The speculation that investors had at the beginning of the week was validated yesterday when President Trump stated in a post on Trump Media & Technology Group's social media platform Truth Social:
"After long and difficult negotiations with Senators, Congressmen, Secretaries, and other Political Representatives, I have determined that, for the Good of our Country, especially in these very troubled and dangerous times, our Military Budget for the year 2027 should not be $1 Trillion Dollars, but rather $1.5 Trillion Dollars."
Changing hands at 79.8 times operating cash flow, shares of AeroVironment are priced at a premium to their five-year average cash flow multiple of 34.9. In light of the stock's rich valuation, those interested in fortifying their portfolios with a leading defense stock such as AeroVironment may prefer to consider a defense-focused exchange-traded fund (ETF).
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Scott Levine has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends AeroVironment. The Motley Fool has a disclosure policy.
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