Share Tips Update: Darktrace, RTX Corp and Chemring

April was a month full of uncertainty for investors. There was intense speculation about when the Fed would start to cut interest rates, while both UK and US stock indexes traded ever higher.

There is more concentration of investment in the Magnificent 7 stocks, which have been very rewarding for investors over the last six months, but the market – including ETFs – is becoming so focused on these, any reversal is going to be very painful indeed.

All of our tipsters turned to the defence sector in April. This is not surprising, given that news of the wars in Ukraine and Gaza continued to dominated headlines. In particular, sabre rattling between Iran and Israel had many analysts wondering whether there might be an escalation of the conflict into a wider Middle East war that might even draw in the US. Instead we were treated to a cosmetic fireworks display that looked like a PR exercise for both Israel and Iran. That said, rearmament trends in Europe and Asia remain a reality, with the defence sector seeing more interest than it has in decades.

Darktrace LON:DARK

We tipped Darktrace on 15 April, before news broke of an offer by private equity firm Thoma Bravo for the cybersecurity company. Our rationale for buying the stock was simple: a) it looked considerably undervalued for what you were getting; b) less of a role in the company on the part of early backer Invoke Capital; c) forecast increased demand for its technology in today’s geopolitical environment. We also flagged up 14 consecutive quarters of QoQ growth in income, which again, was not justified in the valuation. It seems Darktrace management and Thoma Bravo agreed with us on this. We now enter the period of inevitable speculation about where big shareholders stand on the Thoma Bravo offer.

RTX Corporation NYSE:RTX

Raine picked RTX Corp for his Wall Street list in April. RTX is both an aerospace and wider defence stock, and owns the famed Pratt & Whitney engineering business. Its Raytheon segment provides defensive and offensive threat detection, tracking and mitigation capabilities for the United States and foreign government and commercial customers. Raytheon designs, develops, and provides advanced capabilities in integrated air and missile defense, smart weapons, missiles and others. Raine thinks RTX is “maybe the best way to play the global defense build up because it has three segments that have high barriers of entry.”

Chemring LON:CHG

James Coffey’s latest FTSE 250 tip is Chemring, a group of related operations active in the areas of countermeasures, sensors and energetics. Countermeasures include military defence measures like decoy flares for aircraft dealing with incoming missiles. James sees the European defence sector generally receiving more contracts, not only as Ukraine receives more funding for its war with Russia, but also as NATO allies beef up their own domestic forces. Chemring has some solid clients, notably the US Department of Defense, which turned to the company when it needed to upgrade the defence systems on its F-35 fighters.

Sold in April: None

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So how are our picks getting on?

James Coffey’s FTSE 350 share tips

Raine Lahtinen’s US stock tips

Tactical trading portfolio

These are shorter term equity and commodity trades which we can see playing out within one to three months. We will sometimes keep these on longer if the trade is still quite range bound but we are anticipating further upside. These trades have the tightest risk parameters.

Longer term buy and hold portfolio

These are positions where we see a longer term growth scenario, usually in the small to mid cap space, but sometimes larger companies. We will typically be keeping these stocks on the list for at least six months and often longer. Consequently our risk tolerance is higher for these positions than for the trading list.

Venture portfolio

These are companies which we see as having long term and considerable growth prospects. Due to their size and the nature of the business they are in, we feel that our normal risk management constraints should not be applied to these stocks.

*Prices as of close of play on 30 April 2024, all prices in GBX (Pence Sterling) unless indicated