Are these 3 under-the-radar FTSE 250 defence stocks set to fly like Babcock and BAE Systems?
The FTSE 250 contains some terrific growth stocks, even if the FTSE 100 grabs most of the headlines. Several are in a sector thatâs booming right now â defence. FTSE 100 big guns such as BAE Systems and Babcock International Group inevitably get all the glory, rocketing 75% and a mind-bending 195% in the last year. But smaller names are quietly rewarding shareholders too. Can they fly even higher in 2026?
Goodwin shares fly
One of them already shooting the lights out is family-run engineering group Goodwin (LSE: GDWN). A business that stretches back to 1883, it’s steadily built a global business around precision engineering for the defence, energy, and industrial sectors. Last year, the shares went bananas.
I planned to buy before its preliminary results on 30 July but forgot while sunning myself on a Spanish beach. When I returned, the Goodwin share price had rocketed after preliminary results showed profits jumping 47% to £35.5m on revenue of £220m.
The shares have continued to smash it, boosted by a major US submarine partnership and a special dividend in October. Its shares are up 225% in a year and 695% over five. But with a price-to-earnings ratio of 71, theyâre just too expensive for me today. And yes, I’m still kicking myself.
Chemring Group’s a winner too
Shares in Chemring Group (LSE: CHG), which makes defence countermeasures, sensors and explosives, are up 62% in the last year. In December, it reported a 31% jump in pre-tax earnings for the year to 31 October, with orders up a fifth to £1.35bn. The board has ambitious plans to double revenue to around £1bn by 2030.
The dreadful war in Ukraine and wider geopolitical uncertainty are clear drivers, as with all these stocks. A much-longed-for sudden peace deal, supply chain issues, or technical delays could hit growth. However, Chemring’s much cheaper than Goodwin, with a P/E of 27.5, and that gives it the edge for me. Defence sector P/Es are elevated across the board. For example, Babcock’s is at 29 and BAE Systems at 30.
Qinetiq lacks energy
Qinetiq Group (LSE: QQ) is the exception. It looks relatively cheap, with a P/E of 19.2. This is largely down to its relatively disappointing performance. The shares are up a modest 22% in the last year, trailing an otherwise bumper sector.
In November, Qinetiq posted a 4.9% drop in first-half earnings to £900.4m, which it blamed on the restructuring of its North American operations, and some order delays as clients focused on bigger contracts. It still secured £2.42bn of orders, up 133% on last yearâs £1.03bn, while underlying net cash flow remained robust at £127.9m.
Qinetiq also has a £316m contract to deliver counter-drone capabilities for the Royal Navy, which is surely a huge growth area as robotic warfare takes off. Iâll need to do more research, but itâs the one I think investors could consider first, due to that modest P/E. It has scope to play catch-up, if it sorts itself out.
Investors should form their own view, which will partly depend on existing holdings. Iâm heavily exposed to BAE Systems, so donât need more sector exposure right now. And I think I’ve missed the boat with Babcock, following its unbelievable run.
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Harvey Jones has positions in BAE Systems. The Motley Fool UK has recommended BAE Systems, Chemring Group Plc, Goodwin Plc, and QinetiQ Group Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
