AllianceBernstein is backing Germany’s leading global tank parts and transmission maker Lenk as a standout opportunity as European defense stocks plummet. Marcus Morris Ayton, portfolio manager at AllianceBernstein, said the sector’s recent decline has created a more attractive entry point into long-term military spending themes. Key winners in 2025 included European defense companies. The Stoxx European Total Market Aerospace and Defense Index ended the year up 56.5%, driven by a pledge by NATO members to increase defense spending to 5% of GDP. But investor excitement over the continental defense “megatrend” has since waned, with some stocks dropping 20-30% from last year’s highs. “We’re seeing growing investor doubts about the implementation risks of increased defense spending,” Morris Ayton told CNBC’s “Squawk Box Europe” on Wednesday. Defense and national security remain the cornerstone of Germany’s landmark fiscal expansion, with Berlin pledging to increase military spending to at least 1% of total GDP. But Morris Ayton said “inevitable” budget delays and “procurement bureaucracy” were hampering progress on local defense contracts. As a result, some German defense stocks that were trading at P/E ratios in the “mid to high 30s” have reversed course and are now in the low 20s, he explained. So there are some attractive individual deals happening within the sector right now. “I think the market has probably gotten a little overheated, but I think it’s at a more interesting level now.” R3NK-DE YTD Mountain Lenk AG. Morris Ayton highlighted Lenk as an important candidate for its portfolio. He said the Bavarian state defense flagship, which manufactures engines, gearboxes and other special parts for tanks, naval ships and other combat vehicles, is “the world market leader in tank transmissions.” This aligns with Alliance Bernstein’s preference for longer cycles of defensive play. “The advantage of that business model is that it’s very aftermarket-centric. You sell transmissions and then you have the opportunity to have a very profitable growth profile in the aftermarket for 10 to 20 years,” he explained. “We’re not just selling one-off weapons and ammunition. You could have a very strong replenishment story, but that’s it. If you sell a tank transmission, you have 20 years of visibility.”
