Salzgitter AG, Argo Graphene Solutions, Huntington Ingalls Industries – In the right place at the right time

Salzgitter AG – The new defense player

It was one of the highlights of the past trading week. Salzgitter AG shot up by around 35% after announcing approval for the delivery of its SECURE 500® security steel. Is the hype justified, or is it just a flash in the pan?

Given growing crises around the world, the steel group is massively expanding its defense portfolio. With the certification of its security steel in accordance with German military standards, Salzgitter AG is gaining access to a lucrative business segment that has previously been served primarily by the Swedish steel group SSAB AB. The demand for this scarce commodity, which is also needed for the production of the Leopard 2 tank, is enormous, at up to 8 million tons per year. In contrast, only 500,000 tons are currently produced annually.

Due to the changing times and NATO's planned increase in defense spending - potentially up to 5% of gross domestic product - demand is likely to grow exponentially. Salzgitter also stands to benefit from the fact that German defense companies like Rheinmetall, Hensoldt & Co. have historically relied on foreign producers. Analysts, including those at Swiss banking giant UBS, see a potential earnings contribution of between EUR 110 and 200 million if the German Armed Forces' approval is granted for Salzgitter's specialized defense-grade steel. However, they also consider the current price rally to be exaggerated.

Regardless of the defense fantasies, Salzgitter's shares are moderately valued. One reason for this is that the Company owns 30% of copper producer Aurubis. This stake alone is worth EUR 1.26 billion. Through its subsidiary Salzgitter Klöckner-Werke GmbH, the S-DAX company also holds 100% of KHS GmbH, a leading global supplier of filling and packaging systems for beverages and liquid foods. KHS generated revenue of EUR 1.517 billion in 2023. The value of these two investments is therefore likely to exceed the current market capitalization of EUR 1.75 billion. Salzgitter AG's valuation is favorable compared to its peer group, with a price-to-earnings ratio of 6.40 and a price-to-sales ratio of 0.15.

Argo Graphene Solutions – Right at the heart of a multi-billion euro package

Germany is going all in! The new red-black coalition government, led by former Blackrock manager Friedrich Merz, has set up a historic special fund of up to EUR 500 billion to invest specifically in infrastructure, education, digitalization, climate action, and achieving climate neutrality within twelve years. More than EUR 37 billion from this pot has already been earmarked for transportation, energy, education, and digital projects for 2025, including around EUR 11.7 billion specifically for railways, roads, and bridges.

The Canadian company, formerly known as Argo Living Soils, has strategically realigned itself and is now operating under the name Argo Graphene Solutions, focusing on high-purity graphene oxide as an additive for concrete and asphalt. This so-called "miracle material," an atom-thin carbon lattice, is over 100 times stronger than steel, electrically conductive, and extremely lightweight. In construction, it can make concrete significantly more robust, reduce cracking, and lower cement consumption, which not only conserves resources but also massively reduces CO2 emissions.

For scaling up, Argo recently opened a logistics and mixing center in Louisiana, strategically located near the port of New Orleans. Together with Landry Construction, customized mixtures for cement, concrete, and asphalt are produced there. This secures supply to the US and Mexican markets, while EU certification for entry into the European market is being pushed forward in parallel.

The capital market has also already embraced the vision: the share price has doubled since May and currently stands at CAD 0.99. Given the global demand for sustainable building materials, the need for reconstruction in many regions, and the renovation of dilapidated bridges and roads in Germany, there is enormous potential here. Argo Graphene Solutions is positioning itself as a technology driver in a billion-dollar market with long-term political backing.

Huntington Ingalls Industries – Strong partners, favorable valuation

While German defense companies in particular have been booming in recent months and the air is likely to become thinner due to their high valuations, other players in the peer group, especially in the United States, still offer potential.

The largest military shipbuilder in the US, Huntington Ingalls Industries, which was spun off in 2011 from aircraft and weapons manufacturer Northrop Grumman, which now specializes in aerospace technology, is trading at a price-to-earnings ratio of 15.1 based on 2026 estimates, well below the industry average. By comparison, Rheinmetall is trading at a P/E ratio of 62, and Hensoldt even exceeds 73. Huntington Ingalls also stands out with a dividend yield of 2.1%, which is high compared to its peer group.

The group includes the long-established shipyard in Newport, which built hundreds of warships and transport vessels during World War II. Today, Huntington Ingalls supplies Gerald Ford-class aircraft carriers, destroyers, submarines, and unmanned naval drones. It also develops its own operating software. This makes the Company the most important supplier to the US Navy. As a result, long-term major contracts such as aircraft carrier construction and maintenance contracts are likely to be secured, ensuring stable revenues for decades to come.

The defense industry continues to be a target for many investors. Salzgitter AG has joined the ranks with the certification of its armor steel. The US company Huntington Ingalls Industries is attractively valued compared to its competitors. Argo Graphe Solutions is likely to benefit significantly from infrastructure measures.