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Written by James Hires for The Motley Fool->
Rheinmetall is one of Germany's leading defense contractors and will benefit from that country's rearmament.
The company manufactures everything from ammunition and artillery to tanks and ships.
It saw its sales surge almost 30% for 2025 and has strong profitability.
I don't think I need to tell you that things are getting a little chaotic out there in the world. The Russia-Ukraine war is raging into its fifth year. There might be a ceasefire in the war between Iran, the United States, and Israel, but it's tenuous at best.
Who knows what will happen next? I certainly don't. Maybe we'll be extremely lucky and countries around the world will finally give peace a chance. Probably not. But a guy can hope, right?
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The best thing you can do for your portfolio right now is hedge it against the chaos across the world and across the markets with Rheinmetall (OTC: RNMBY), which is shaping up to be one of the best defense industry plays for an uncertain future.
The state of the world has not eluded the attention of governments. And many of them are either rearming or expanding their military budgets rapidly. Nowhere is this rearmament more plainly visible than in Europe -- and in Germany in particular.
Back in 2020, Germany was the seventh-largest spender on its military, behind Saudi Arabia, India, and the United Kingdom.
In 2024, Germany became the fourth-largest military spender in the world, behind only the U.S., China, and Russia. Its 2024 military budget only accounted for 3.93% of its government spending as well.
And Germany plans to grow its military budget to 152 billion euros by 2029, almost double the 86 billion euros it spent in 2025. The biggest beneficiary of that spending is likely to be Rheinmetall, one of Germany's largest defense contractors.
Rheinmetall is perhaps best known for its vehicles like the Leopard 2 tank, of which it is a major producer. It also designs and manufactures artillery, ammunition, drones, and after its acquisition of Naval Vessels Lürssen (closed Feb. 27, 2026) it's even engaged in shipbuilding for the German navy.
Rheinmetall has been heavily involved in the Russia-Ukraine War and its products like the Leopard 1 and 2, the Caracal tactical vehicle, and the RCH 155 self-propelled howitzer have all been sent to Ukraine along with trucks, ammunition, and drones.
That, critically, makes Rheinmetall one of the only defense contractors with very recent combat testing for its products on the battlefield of the 2020s. The Leopard 2 has faced serious issues in the face of Russian drones as well as its complex design. The tank was also designed for use with air superiority, which Ukraine lacks, leaving the Leopard 2 vulnerable to Russian airstrikes.
Rheinmetall is putting the lessons learned in Ukraine into its next-generation Panther Kf51 tank, which makes it one of the only tank designs optimized to today's battlefield. It comes equipped with an autonomous anti-drone machine gun and four HERO120 loitering munitions to provide some of its own limited air support.
I'm sure the Panther will become a hot commodity with German and broader European rearmament in the coming years. Speaking of, Rheinmetall has already been benefiting from German rearmament, even at this early stage.
For Rheinmetall's full-year 2025 results, the company recorded a 29% year-over-year sales increase. Its operating profit grew 33% and its margin grew 0.5 percentage points to 18.5%. Additionally, its backlog surged 36% to hit 63.7 billion euros.
The company expects its revenue growth to accelerate to a compound annual growth rate (CAGR) of 35%. Sales grew across the board in 2025 and now that the company is involved in shipbuilding I expect that segment to be another growth prospect for Rheinmetall.
It's also worth noting that, for a company that needs to operate a lot of factory space and spend considerable cash on the raw materials it forges into its products, Rheinmetall has a very healthy balance sheet with a debt-to-equity ratio of 0.47.
I expect all defense contractors will enjoy a bull market over the next couple of years, but it's in Europe that the defense spending is ramping up fastest. And it's Rheinmetall that's among the best positioned to absorb those surging defense budgets.
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James Hires has no position in any of the stocks mentioned. The Motley Fool recommends Rheinmetall. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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