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Investing.com -- J.P. Morgan analyst David Perry said European defense stocks are likely to remain volatile as diplomatic efforts continue around the conflict in Ukraine.
In a recent note, Perry pointed to upcoming meetings between the U.S. President Donald Trump, Ukrainian President Volodymyr Zelensky and European leaders, as well as a proposed U.S.-Russia-Ukraine summit, as near-term drivers of sentiment.
Beyond the near-term volatility, Perry said European defense spending will increase over the next decade regardless of how negotiations unfold.
He flagged Germany as the clear leader in boosting military budgets and said political resistance to higher spending would continue to create swings in the sector. Pullbacks, he added, would likely prove to be buying opportunities.
J.P. Morgan’s top near-term recommendations include the three German defense companies Rheinmetall, Hensoldt and Renk, which have dropped by an average of 15% in the past month. “We see this as an attractive entry point,” he said.
Beyond Germany, Perry also pointed to Babcock, which has fallen 7% over the same period.
He said all four companies are preparing investor events that could set guidance above market expectations and highlight growth opportunities, particularly in Babcock’s Marine division.
Perry underlined that the “peace dividend” era that followed the Cold War has ended and that Europe faces a new security landscape.
Russia’s territorial demands remain unacceptable to Ukraine and its Western allies, while the U.S. and Europe are weighing further sanctions and possible security guarantees for Kyiv.
“In our view, all this means we are in a new era of much higher European defence spending, with Germany leading the way by far. This era is likely to last for much of the next decade, in our view,” Perry added.