Crash in defense stocks: That doesn’t mean the rally at Rheinmetall is over yet

On Tuesday, German defense stocks plunged on the stock exchange following news from Ukraine. However, at least for the DAX stock Rheinmetall, this could only be a short correction. Should investors take advantage of the dip?

Tuesday was not a good day for defense stocks. Stocks such as Rheinmetall fell following a report by the platform “Bloomberg” on considerations regarding a possible ceasefire in Ukraine. Some of the Ukrainian allies have begun to talk about how the fight against the Russian invasion could end, reported the Bloomberg news agency, citing people familiar with the matter.

The DAX group lost almost seven percent by the end of trading on Tuesday and plunged to a monthly low of around 483 euros. The last time the shares looked this bad was at the beginning of August, when they were trading at around 480 euros.

Hensoldt and Renk shares also lose

But Rheinmetall was not the only German defense stock that was caught off guard by the news from “Bloomberg.” MDAX group Hensoldt lost more than seven percent on Tuesday, while competitor Renk had the smallest losses, with a loss of just under five percent. However, the possible considerations regarding peace negotiations show how sensitive investors react to news from the sector and want to realize profits. Expectations are much higher, at least for Rheinmetall.

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Price targets of over 700 euros for Rheinmetall shares

Despite peace negotiations, the general trend towards more armament in Western countries remains intact due to numerous geopolitical risks – and Rheinmetall's order books are full. The average price target of analysts is currently over 616 euros, which corresponds to an upside of 27.57 percent.

Morgan Stanley recently estimated the fair value of the share at 730 euros. In the medium term, Rheinmetall shares should very likely stabilize again above 500 euros. For investors, the dip could also be worth investing in the defense company. However, short-term price fluctuations must be factored in.

With material from dpa-AFX

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