FRANKFURT (dpa-AFX) - Investors are once again offloading their defense stocks on Tuesday. The rally that drove Rheinmetall shares above the 2,000-euro mark last autumn has lost momentum for several months now. The recent volatility for the DAX-listed company continued, with shares dropping by 2.4 percent. The sell-off was triggered by new negotiations on the geopolitical stage: Ukraine and Russia have resumed talks in Geneva, while the USA and Iran are entering a second round of negotiations.

The ongoing debate about whether these conflicts can be resolved at the negotiating table has repeatedly weighed on the sector in recent weeks. Since Russia’s invasion of Ukraine in 2022, defense stocks have staged a remarkable rally. However, any glimmer of hope on the geopolitical horizon tends to dampen sentiment in the sector, even though analysts consistently stress that a ceasefire would not halt Europe’s necessary investments in defense. The Munich Security Conference made it clear that Europe no longer wants to rely on the USA as its protective power.

Additionally burdened by a negative analyst assessment, Hensoldt shares in the MDAX fell even more sharply than Rheinmetall, dropping 4.5 percent, while Renk and TKMS each lost up to 2.7 percent. Hensoldt was negatively initiated by analysts at Italian bank Mediobanca due to concerns over its valuation. This suggests that increased spending in Germany may already be priced in.

Based on Hensoldt’s current price of 78 euros, Mediobanca’s target of 89 euros implies some upside potential. However, the assigned "Underperform" rating means analyst Alessandro Pozzi expects the stock’s performance to lag behind its sector peers. Pozzi sees better opportunities at Rheinmetall. The DAX group, together with Italy’s Leonardo and Spain’s Indra Sistemas—which has newly received an "Outperform" rating—forms his top recommendations for 2026.

Pozzi has broadened his valuation horizon in the defense sector as recent events in Venezuela and Greenland reshape the world order, and as US President Donald Trump adopts an increasingly confrontational tone toward Europe. Against this backdrop, the expert made further rating changes, resulting in neutral assessments for both Fincantieri and BAE Systems./tih/ag/men