Babcock International PLC (LSE:BAB) and QinetiQ Group PLC (LSE:QQ.) remain undervalued, and the European defence sector is still worth backing for long-term investors, reckons JP Morgan, especially if there is any of the usual summer pullback.
At the NATO summit this week, 30 European leaders made strong commitments to increase defence spending in the coming decade, though the bank expects some countries will increase defence spending more significantly than others in the next 5-10 years.
"We maintain a very positive multi-year view on the European defence sector but also note that the sector has paused for breath every summer since 2022."
In terms of ranking the stocks, JP Morgan's strong preference is for the fast-growing German defence stocks, Rheinmetall, Hensoldt and RENK Group, as well as "undervalued UK defence stocks" Babcock and QinetiQ .