Which defense stocks are undervalued

Screening Filters

1. Market Cap ≥ $300M (market_cap: {'min': '300000000'})

   • Purpose: Focus on established, tradeable defense companies.
   • Rationale:
     • Very small/micro-cap stocks can be illiquid, more volatile, and subject to large price swings that don’t reflect fundamentals.
     • A $300M floor keeps the universe in the “small-cap and above” range, where financials are usually more reliable and institutional investors are active.
     • For an “undervalued” screen, you generally want companies where valuation ratios are meaningful and less distorted by very thin trading.

2. Industry = Aerospace & Defense (industry: ['Aerospace & Defense'])

   • Purpose: Restrict results to U.S.-listed defense-related companies.
   • Rationale:
     • “Defense stocks” typically sit in the Aerospace & Defense industry classification (e.g., weapons systems, defense electronics, military aircraft, space/defense contractors).
     • This filter directly aligns the universe with your sector of interest instead of pulling in unrelated industrials or tech names.

3. US Major Exchanges Only (list_exchange: ['XNYS', 'XNAS', 'XASE'])

   • Purpose: Limit to primary U.S. listings on major exchanges.
   • Rationale:
     • XNYS (NYSE), XNAS (NASDAQ), XASE (NYSE American) are the main U.S. stock exchanges.
     • This matches your “US market” requirement and excludes OTC or foreign primary listings that can have different trading/ disclosure standards.
     • Major exchanges also tend to have stricter listing requirements and better liquidity.

4. P/E (TTM) Between 0.01 and 25 (pe_ttm: {'min': '0.01', 'max': '25'})

   • Purpose: Find defense stocks that are reasonably priced relative to current earnings.
   • Rationale:
     • Upper cap at 25: Many mature industrial/defense names trade in a mid-teens to low-20s P/E range in “normal” markets. Capping P/E at 25 aims to exclude highly expensive growth stories and focus on potentially cheaper names.
     • Lower bound > 0: Requires the company to have positive earnings—otherwise P/E is negative or not meaningful. This keeps the “undervalued” logic tied to real, profitable businesses.
     • Avoids ultra-low P/Es that can sometimes reflect one-off events or data errors by setting a small positive minimum (0.01).

5. P/B Between 0.01 and 5 (pb_ratio: {'min': '0.01', 'max': '5'})

   • Purpose: Screen for companies not trading at extreme premiums to their book value (net assets).
   • Rationale:
     • Upper cap at 5: In capital-intensive sectors like Aerospace & Defense, a very high P/B (e.g., >5–6) can indicate an optimistic valuation relative to tangible assets, which is less consistent with “undervalued.”
     • Low-to-moderate P/B levels are often associated with value opportunities, particularly where assets (plants, equipment, IP, contracts) are substantial.
     • Lower bound > 0: Eliminates nonsensical or error-prone ratios; a P/B close to zero can be due to distorted or negative equity.

6. EV/EBITDA Between 0.01 and 14 (ev_ebitda: {'min': '0.01', 'max': '14'})

   • Purpose: Target companies cheaply valued on an enterprise value to cash earnings basis.
   • Rationale:
     • EV/EBITDA is a widely used valuation multiple for industrial and defense names because it:
       • Adjusts for capital structure (debt vs. equity).
       • Focuses on operating performance before non-cash items.
     • Upper cap at 14: Defense contractors and industrials often cluster in a high-single to low-teens EV/EBITDA range; keeping it ≤14 biases toward the lower or mid end of typical valuations and excludes clearly expensive outliers.
     • Lower bound > 0: Excludes companies with negative EBITDA or data errors, where “cheap” might just be a sign of stress or non-viable operations.

Why Results Match Your Request

• US Defense Focus:

  • The industry filter (Aerospace & Defense) plus US exchange filter (NYSE, NASDAQ, NYSE American) ensures the list is U.S.-listed defense-related stocks, not foreign or non-defense companies.

• Undervaluation Bias via Multiples:

  • P/E ≤ 25, P/B ≤ 5, and EV/EBITDA ≤ 14 collectively steer the screen toward companies that are:
    • Profitable (positive earnings and EBITDA),
    • Not trading at extreme premiums to earnings, assets, or operating cash flow, and
    • Often cheaper than high-flying growth names or sector peers with richer valuations.
  • No single ratio proves a stock is “undervalued,” but using three valuation measures together significantly increases the chances you’re looking at relatively inexpensive names rather than overhyped ones.

• Quality & Practicality:

  • The market cap threshold keeps out tiny, speculative issues where ratios are noisy and price moves can be disconnected from fundamentals.
  • Together, the filters form a conservative value-oriented screen within U.S. defense, aligned with your interest in “currently undervalued” stocks rather than speculative or richly priced defense plays.