Defense stocks are similar to healthcare stocks in that they are largely immune to inflation or recessions and add stability to your portfolio during economic or political uncertainty.
Over the past few years, governments have ratcheted up defense spending in response to the rising level of global conflict, with Russia’s invasion of Ukraine, tensions in Asia and the Middle East.
Defense stocks are solid investments because they benefit from stable, long-term government contracts. When countries boost military procurement, it’s a good time to invest in the sector. This guide features 11 of the best defense stocks in the market right now.
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The top 11 defense stocks to invest in now – Overview
- Lockheed Martin: As the US government’s biggest contractor, Lockheed is involved in arms, such as missiles and advanced weapons systems, aerospace, technology, and information security.
- Intuitive Machines: The US company focuses mainly on lunar landers and exploration vehicles. However, it has branched out into National Security Space and is leveraging its technologies for defense purposes.
- Firefly Aerospace: The US space and defense technology company had its initial public offering (IPO) on the NASDAQ on Aug. 7 and is gaining a lot of attention. It focuses on launch vehicles and lunar landers.
- TransDigm Group: The Cleveland, Ohio-based airplane parts manufacturer makes replacement parts for commercial and military aircraft. It has been active in acquisitions to increase its market share.
- L3Harris Technologies: The Florida-based aerospace and defense company builds communication, avionics and satellite systems. It has supplied the defense industry for more than 100 years.
- General Dynamics Corporation: The fifth largest defense company in the world by arms sales, makes ships, tanks and land vehicles, as well as support technology for the defense industry.
- Textron: The US military and industrial equipment firm makes Bell helicopters, Cessna aircraft. It operates across six segments: Bell, Textron Aviation, Textron eAviation, Industrial, Textron Systems and Finance.
- RTX Corporation: The world’s largest aerospace and defense firm makes jet engines and parts for commercial and defense aircraft, as well as integrated battle management systems, weapon, missile and radar systems.
- Curtiss-Wright Group: The Davidson, North Carolina-based firm provides engineered products and services to the defense and aerospace industries, as well as to commercial power and industrial markets.
- Boeing Company: The US company is a leading commercial aircraft manufacturer and also makes military aircraft and helicopters, as well as autonomous submarines used by the defense industry.
- Leidos Holdings: Based in Reston, Virginia, the company provides IT support for various US government and defense entities, as well as high-technology products, such as advanced weapons technology.
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An in-depth look at these top defense stocks to watch
Now, let’s take a detailed look at these top-ranked defense shares and examine the investment case behind them.
1. Lockheed Martin: Best defense stock for consistent growth
Lockheed Martin (NYSE: LMT) is involved in all things related to the military, and all of its four segments have connections to the defense industry: Aeronautics, Missiles and Fire Control (MFC), Rotary and Mission Systems (RMS) and Space.
The maker of the F-35 stealth fighter jets and Black Hawk military helicopters is heavily dependent on US government spending, but it is branching out with more defense sales to Europe. Its shares are down 6% so far this year, though, on sluggish earnings growth and as the US government shutdown weighed down defense stocks.
In the third quarter, the company reported revenue of $18.61 billion, up 9% year over year. However, net earnings were flat at $1.62 billion, with EPS rising slightly to $6.95 from $6.80 a year earlier.
On the positive side, the US Army recently awarded a $720 million contract to Lockheed to produce joint air-to-ground missiles and HELLFIRE missiles as part of a multi-year contract.
In its third-quarter report, the defense firm slightly upped its 2025 profit guidance to $6.70 billion at the midpoint from $6.65 billion earlier.
It also nudged its full-year revenue guidance higher by $250 million, expecting $74.50 billion at the midpoint. It also has a record backlog of $179.1 billion in orders, including $38.39 billion in its space segment.
In October, the board increased the planned share repurchases by $2 billion to $9.1 billion and raised the dividend by 5% from the previous quarter to $3.45. The dividend currently yields 3.04%. Lockheed has raised its dividend for 23 consecutive years, including a 5% increase in 2024.
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2. Intuitive Machines: Stock could take off any time
Intuitive Machines (NASDAQ: LUNR) made the first lunar landing of any company this year and has been working with the US Department of Defense on autonomous robotic technologies and assured positioning, as well as navigation and timing (APNT) for GPS-denied environments.
The lunar lander maker has also been involved in strategic partnerships with the National Reconnaissance Office and other non-government agencies. The stock is down 49% this year, but up more than 399% over the past five years.
In November, Intuitive said it agreed to buy Lanteris Space Systems, a spacecraft maker, from private equity firm Advent International in a deal worth $800 million. This will allow it to expand its product range beyond the lunar segment and take it closer to its ambition of becoming a full-service space firm.
The company continues to narrow its losses. It said that third-quarter revenue was $52.4 million, down 10% year over year. It indicated the fourth-quarter revenue will be similar to that of the third quarter. Net loss was $9.96 million compared to a net loss of $80.36 million in the same period a year ago.
Intuitive also is working with the with UK-based Space Forge to bring that company’s microgravity semiconductor manufacturing into space, onto Intuitive Machines’ Zephyr spacecraft. This will enable the manufacturing of advanced semiconductor components that can only be created in a low- or no-gravity environment.
In the previous quarter, Intuitive downgraded its full-year 2025 revenue expectation to be on the lower end of the range between $250 million and $300 million. It also said it sees positive adjusted EBITDA by 2026.
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3. Firefly Aerospace: Newcomer breaking into uncharted territory
Firefly (NASDAQ: FLY) is the only commercial company to launch a satellite to orbit with approximately 24-hour notice and was the first company to achieve a fully successful landing on the Moon. Its shares are down more than 61% since its IPO in August. It is a micro-cap stock with a market cap of $2.7 billion.
The company’s small and medium-sized launchers have landed it big name clients, including Lockheed Martin and L3Harris. Firefly has also recently won two big contracts, including one for $177 million with NASA for a mission to the Moon’s South Pole and an investment for $50 million from Northrop Grumman to advance production of their co-developed medium launch vehicle, now known as Eclipse.
FLY also recently got clearance from the Federal Aviation Administration to resume its Alpha rocket launches. The Alpha rocket suffered a technical problem in April while ascending on its sixth flight, causing a Lockheed Martin satellite it was supposed to place into orbit to crash into the Pacific Ocean.
Though it isn’t profitable yet and hasn’t released an earnings report, in its IPO prospectus, it said it had as of March 31, a $1.1 backlog of orders. It also had, at that time $176.3 million in debt. However, the company could benefit from the growing need for providers with proven launch platforms and differentiated capabilities. The company’s competence on missions should help it land future contracts.
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4. TransDigm Group: Defense stock with huge margins, big moat
TransDigm (NYSE:TDG) manufactures aircraft parts, ranging from cockpit security systems to pumps, valves, and parachute systems. Its customers are commercial airlines and the defense industry. It makes original equipment manufacturer (OEM) and aftermarket parts, and the latter is its biggest revenue generator.
The stock is up more than 6% so far this year and more than 8% over the past year. In the fiscal fourth quarter, revenue climbed 12% year over year to $2.44 billion. EPS rose 34% from the same quarter a year ago to $7.75.
The company also issued estimates for fiscal 2026. It expects revenue in the range of $9.75 billion to $9.95 billion compared with $8.83 billion in fiscal 2025, an increase of 11.5% at the midpoint.
It expects full-year EPS to be in the range of $31.55 to $33.59 in the new fiscal year, compared with $32.08 in fiscal 2025, a 1.5% increase at the midpoint.
The defense firm enjoys strong profit margins. Its EBITDA as defined margin, its preferred non-GAAP measure of profitability, was 54.4%. It sees full-year EBITDA As Defined of between $5.08 billion and $5.23 billion, rising 8.2% at the midpoint from $4.76 billion in fiscal 2025.
TransDigm continues to thrive by buying its smaller rivals to increase its market share and pricing power. Since its founding in 1993, it has bought more than 92 businesses. It spent roughly $110 million to buy Servotronics, a maker of servo valves used for hydraulics in aerospace manufacturing.
It also has an agreement to buy, for $765 million in cash, Simmonds, a global designer and manufacturer of fuel & proximity sensing and structural health monitoring products for the aerospace and defense markets.
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5. L3Harris Technologies: Growing profits, improving finances
L3Harris (NYSE: LHX) makes advanced tech to serve land, sea and air operations. It provides main and upper-stage engines for launch vehicles for NASA, solid rocket motors for missiles and space launches, as well as in-flight propulsion systems used on spacecraft. Its shares are up more than 31% so far this year.
The company landed a contract with the US government this year to produce a next-generation security processor for communication devices, helping the US safeguard weapons systems against current and future cyber threats.
In August, it won a contract from Poland to provide its Viper Shield electronic warfare system for the country’s F-16 Viper upgrade program. The company didn’t disclose the value of the orders.
In the third quarter, revenue rose 7% from the same quarter a year earlier to $5.66 billion. Non-GAAP EPS rose by 10% to $2.70, beating the Wall Street consensus estimate of $2.56.
The most significant development was that the company received new orders totaling $6.7 billion, resulting in a book-to-bill ratio of 1.2x. This ratio, orders divided by revenue, shows that new orders outpaced revenue, indicating a strong sales pipeline.
Following these earnings, the company raised its full-year forecasts. The company expects annual revenue of $22 billion, compared to $21.3 billion in 2024. It also expects full-year non-GAAP EPS of between $10.50 and $10.70 per share, compared to $13.10 in 2024.
The firm raised its quarterly dividend by 3.4% this year to $1.20, the 24th consecutive year it has raised its dividend. The yield is 1.74%.
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6. General Dynamics Corporation: Great income stock exhibiting steady growth
General Dynamics (NYSE:GD) makes a broad array of defense products, including ship construction and repair; land combat vehicles, weapons systems and munitions; and technology products and services. It also makes business jets through its ownership of Gulfstream.
General Dynamics has recently landed a deal with the US Navy worth at least $12.4 billion in contract modifications for the construction of two fiscal year 2024 Virginia-class submarines.
The defense contractor had a backlog of $88.7 billion in orders at the end of the first quarter. The stock is up nearly 30% so far this year.
In the third quarter, the company reported revenue of $12.9 billion, up 10.6% from the same period a year ago. EPS was $3.88, up 15.8% year over year. The company operates in four segments, with Aerospace and Marine Systems leading the way with a 30.3% and 13.8% rise in revenue, respectively, year over year.
General Dynamics has increased its quarterly dividend for 28 consecutive years, including a 5.6% bump to $1.50 per share this year, equaling a yield of around 1.76%.
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7. Textron: Solid small defense company for growth
Textron (NYSE: TXT) and its subsidiaries make everything from business jets to electric military aircraft to virtual reality flight simulators. Its Textron Systems subsidiary makes products for defense, homeland security and aerospace, including unmanned systems, training and specialized vehicles.
Another subsidiary, Textron Aviation Defense, designs, builds and supports military aircraft, including training and attack aircraft. It also appears good value as it trades for about 18 times earnings.
The company’s stock is up nearly 9% this year, but down more than 2% over the past year. The main reason for the drop is that production hasn’t fully recovered yet from the disruptions caused by a labor strike in late 2024.
However, the company still had a solid third quarter. It posted quarterly revenue of $3.6 billion, up 5% over the same period a year ago. EPS was $1.31, or $1.55 on an adjusted basis, compared with $1.44 in the same quarter a year earlier.
Looking forward, the company reiterated its forecast for full-year EPS to be between $5.19 to $5.39, compared to $5.34 in 2024.
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8. RTX Corporation: Solid growth, steady dividend from defense behemoth
Based in Arlington, Virginia, RTX Corporation (NYSE:RTX), formerly Raytheon Technologies, employs 185,000 people globally.
The company provides a vast swath of materials and products for the defense industry, including integrated air and missile defense, smart weapons, advanced sensors, and radars.
The Pentagon has recently awarded RTX a $1.7 billion contract to produce a new missile defense sensor that will replace the current Patriot system’s radar. The stock is up more than 50.5% so far this year.
In the third quarter, the company had revenue of $21.58 billion, up 9% year over year. EPS was $1.41, including $0.29 of acquisition accounting adjustments, $0.01 of restructuring and $0.01 related to other non-recurring items, versus EPS of $1.09 a year earlier. Adjusted EPS was $1.70, compared with adjusted EPS of $1.45 in the same period of last year.
The defense firm raised its forecast for adjusted full-year sales to between $86.5 billion and $87.0 billion, representing organic growth of 8% to 9%. It also upped its expectation for adjusted EPS to a range of $6.10 to $6.20 from between $5.80 to $5.95. That compares with $5.73 in 2024.
The company is a dividend aristocrat that has increased its dividend for 27 consecutive years, including a 7.9% bump this year to $0.68 per quarterly share, representing a yield of around 1.98%.
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9. Curtiss-Wright Corporation: Continued growth in revenue and margins
Curtiss-Wright (NYSE:CW) provides highly engineered products and services mainly to aerospace and defense markets, as well as critical technologies in commercial power, process and industrial markets.
Once the largest aircraft manufacturer in the US, it now focuses on parts and services. It operates in three segments: Aerospace & Industrial; Defense Electronics; and Naval & Power. The stock has been soaring recently. It’s up more than 55% so far this year and more than 48% over the past year.
In the third quarter, strong sales from all three segments helped boost the company’s earnings.
Revenue rose 9% year over year to $869.2 million, and EPS, excluding non-recurring items, jumped 14% to $3.40. The company said it had $927 million in new orders in the quarter, up 8% from the same quarter last year, reflecting strong demand commercial nuclear and commercial aerospace markets.
The strong quarter led it to increase its forecasts. The company now expects sales to grow between 10% and 11% this year, after earlier estimates of between 9% and 10%.
It also sees operating margin of between 18.5% to 18.7%. It predicts EPS rising to a new range of $12.95 to $13.20, an increase of 19% to 21% over a year earlier.
Curtiss-Wright is on track for its target of $450 million of share repurchases this year. Its quarterly dividend increased last quarter by 14% to $0.24, a yield of around 0.18%. It has increased its dividend for nine consecutive years.
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10. Boeing comeback: A big bounceback after several setbacks
Boeing (NYSE:BA) after years of bad news looks to be making a comeback. In March, it won the contract to produce, for the US Air Force, the Next Generation Air Dominance future fighter jet, known as NGAD.
Other recent defense-related activities include the UK’s purchase of a C-17 aerial aircraft support package from the US government with Boeing as the principal contractor, and Israel’s order of Boeing aerial refueling tankers. Valued at $20 billion just for the initial Engineering and Manufacturing Development phase, it signals a big lift for Boeing’s military aviation division.
The company has also improved production of its commercial aircraft, and its shares barely took a hit after a Boeing 787 Dreamliner jet crashed in India in June, killing 260. The stock is up more than 25% over the past year and 15% in 2025.
Boeing, which hasn’t turned an annual profit since 2018, is at least showing improved finances. Third-quarter revenue grew by 30% year over year to $23.27 billion. It had a loss per share of $7.14, compared to a loss per share of $9.97 in the same period a year ago.
Boeing’s backlog increased to $636 billion, including more than 5,900 orders for commercial jets. It also has relatively stable defense contracts.
The aircraft maker has three segments: Commercial Airplanes, Defense, Space & Security and Global Services. Commercial Airplanes is leading the company’s turnaround in the first nine months, with revenue of $30.12 billion in the quarter, up 66% year over year.
The Defense, Space & Security segment has recently won a $2.47 billion contract from the U.S. Air Force for 15 additional KC-46A Pegasus aerial refueling tankers.
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11. Leidos Holdings: Solid, dependable growth, new defense contracts
Leidos (NYSE: LDOS) is a strong defense innovator. It recently said that it’s using advanced magnetic navigation technology, as part of a contract in its Defense Innovation Unit, to overcome the issue of GPS jamming in military operations.
The company is the largest provider of defense IT services and operates in Defense Solutions, Civil and Health. In recent contract wins, it was awarded a $2.2 billion classified contract with the intelligence community and a $540 million, seven-year deal to continue enhancing and maintaining AI-enabled software for counterterrorism efforts.
In October, Leidos won a 19-year contract from Kazakhstan’s air navigation service provider to modernize the air traffic control system. It didn’t disclose the value of the order.
Leidos is also one of our top picks for space stocks worth considering. It’s involved in every aspect of the US government, providing scientific, engineering, systems integration and technical services for defense, aviation, information technology, and biomedical research. Its shares are up more than 25% so far this year.
In the third quarter of 2025, Leidos had revenue of $4.47 billion, rising 7% year over year, and adjusted EPS of $3.05, up 4% over the same quarter last year.
After these figures, Leidos left its annual revenue forecast unchanged, expecting it to be between $17 billion and $17.25 billion. It also increased its full-year adjusted profit estimate to between $11.45 and $11.75 per share from between $11.15 and $11.45 per share expected earlier.
Leidos also pays a quarterly dividend that yields approximately 0.92%, and it has just increased its dividend by 7.5% over the previous quarter to $0.43 per share. Its low payout ratio of only 13.80% means the company can afford future raises.
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The case for investing in defense stocks
Heightened tensions, ongoing conflicts, and a renewed focus on national security by countries worldwide are driving significant and sustained increases in defense spending.
Governments are prioritizing the modernization of their militaries, particularly since Russia’s invasion of Ukraine, leading to substantial contracts for defense companies that often span multiple years, providing a high degree of revenue visibility and stability.
The growth potential for military stocks
This consistent demand, largely insulated from typical economic cycles, makes defense stocks an attractive option for investors seeking reliable performance, especially during periods of broader market volatility.
According to a report from the Stockholm Peace Research Institute, world military spending climbed by 9.4% in 2024, reaching $2.72 trillion. The report said it’s the highest year-on-year jump since at least the end of the cold war.
Even tech giant Meta Platforms (NASDAQ:META) is getting in on the defense industry, announcing in early June a partnership with defense contractor Anduril Industries Inc. to develop new high-tech military technology, including a futuristic augmented reality helmet called “Eagle Eye.”
Military spending increased in all world regions last year, with particularly rapid growth in both Europe and the Middle East. While that’s bad news for world peace, it’s good news for defense stocks.
Technological innovation
Beyond direct military equipment, the defense sector is also at the forefront of technological innovation. Companies in this space are heavily investing in and developing cutting-edge technologies such as artificial intelligence (AI), advanced robotics, cybersecurity, autonomous systems, and space-based capabilities.
These advancements not only enhance military capabilities but often have dual-use applications that can spill over into commercial sectors, creating additional revenue streams and growth opportunities.
The continuous need for technological superiority ensures a steady pipeline of research and development, often government-funded, which further strengthens the financial position of these companies and offers potential for long-term growth.
Portfolio diversification
Defense stocks also can add diversification to a portfolio. Their performance is often less correlated with the broader market, offering a potential hedge against economic downturns. Many established defense contractors also offer consistent dividend payouts, thanks to their stable earnings and strong cash flows, making them appealing for income-focused investors.
While ethical considerations are a factor for some, the fundamental need for national security and the critical role these companies play in global stability underscore the enduring demand for their products and services, creating a robust investment case for the defense industry.
Types of defense stocks
The defense industry is a vast and complex sector, comprising a wide range of companies that are crucial to national security. These organizations develop the tools, technology, and infrastructure that armed forces depend on. You can generally categorize defense companies into four main types:
1. Weapon manufacturers
These companies form the bedrock of the traditional defense industry, producing everything from small arms like rifles and tank shells to sophisticated missile systems and combat vehicles.
They collaborate closely with governments and defense agencies to ensure military personnel are equipped with the most current and reliable weaponry.
2. Aerospace and aviation
Companies in this category are responsible for building and maintaining military aircraft, including fighter jets, attack helicopters, and surveillance drones, along with the numerous components needed to keep them operational.
While many of these firms also have civilian aviation divisions, their military projects — such as jet engines, radar systems, and maintenance services — are vital to defense operations.
3. Technology and cybersecurity
As the nature of warfare changes, so does the battlefield, with much of it now existing in the digital realm. These companies develop advanced technologies, including cyber defense platforms, surveillance systems, satellite imaging, and AI-driven threat detection.
They act as the silent guardians behind the scenes, protecting vital digital assets.
4. Infrastructure and engineering
Beyond weaponry, logistics and robust facilities are equally important in defense. These firms specialize in constructing and maintaining critical assets such as naval docks, air force runways, secure bunkers, and border infrastructure.
Their work plays a significant role in ensuring long-term defense readiness and supporting military personnel.
Comparing these top defense stocks
Compare our 11 top picks, based on their price-to-earnings (P/E) ratio in an easy-to-view format.
| Ticker | Company | P/E ratio |
| NYSE: LMT | Lockheed Martin | 24.68 |
| NASDAQ: LUNR | Intuitive Machines | N/A |
| NASDAQ: FLY | Firefly Aerospace | N/A |
| NYSE: TDG | TransDigm Group | 41.69 |
| NYSE: LHX | L3Harris Technologies | 29.44 |
| NYSE: GD | General Dynamics Corporation | 21.78 |
| NYSE: TXT | Textron | 18.09 |
| NYSE: RTX | RTX | 34.66 |
| NYSE: CW | Curtiss-Wright Corporation | 44.69 |
| NYSE: BA | Boeing Company | N/A |
| NYSE: LDOS | Leidos Holdings | 23.83 |
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Other ways of investing in defense stocks
Besides directly buying shares of defense industry stocks, there are other ways to invest in the defense industry, including exchange-traded funds (ETFs), mutual funds and CFDs. Each of these ways offer different levels of diversification, liquidity and expense ratios, so it’s important to research each option.
Defense-themed ETFs
ETFs hold a basket of stocks from various companies, and some of them specialize in stocks involved in aerospace, defense, and sometimes related technologies (such as cybersecurity or drones). This diversification reduces the risk associated with any single company’s performance.
Some popular defense-themed ETFs:
iShares U.S. Aerospace & Defense ETF (ITA): This is one of the largest and most well-known defense ETFs, focusing on U.S. aerospace and defense companies. It’s up more than 38% this year and has an expense ratio of 0.40%. It tracks the Dow Jones U.S. Select Aerospace & Defense Index.
The Direxion Daily Aerospace & Defense Bull 3X Shares (DFEN): This is a leveraged ETF that seeks a 300% daily return on the Dow Jones Select Aerospace and Defense Index. It has 54 holdings, led by GE Aerospace at 21.50%. It has a high expense ratio of 0.95% and is up more than 113% so far this year. Its dividend yield is approximately 6.45%.
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Defense-themed mutual funds
There are far fewer mutual funds connected to the defense industry than ETFs. Here is the most well-known fund specializing in the aerospace and defense sector in the US:
Fidelity Select Defense and Aerospace Portfolio (FSDAX): The ETF invests at least 90% of its assets in companies involved in the research, manufacturing, or marketing of products and services in these industries. The fund has an expense ratio of 0.65%. It has 34 holdings, including GE Aerospace at 18.08%. The ETF closely tracks the MSCI US IMI Aerospace & Defense 25/50 Linked Index.
Trading contracts for difference (CFDs) on defense stocks
Seeking to profit from the defense industry through CFDs offers a different approach compared to traditional stock ownership. CFDs are derivative products that allow you to speculate on the price movements of an underlying asset without actually owning the asset itself.
CFDs are designed for short-term price speculation. You agree to exchange the difference in the price from when you open your position to when you close it. CFDs allow you to bet on rising and falling prices.
- When you go long, buy a CFD, you will make a profit as the market rises in price. But you will make a loss if the market goes against you.
- You can also go short, or sell a CFD. In this case, you make a profit if the price falls. You incur a loss, though, if the market rises.
You can trade individual company CFDs as many CFD brokers offer CFDs on major defense stocks. You may as well trade CFDs on defense industry ETFs. There are even defense industry index CFDs available.
Investing in defense-industry themed eToro smart portfolios
eToro’s DroneTech smart portfolio focuses on companies involved in Unmanned Aerial Vehicles (UAVs), which have significant applications in military, commercial, and recreational sectors. This portfolio includes major players in the aerospace and defense industry that are developing and utilizing drone technology.
Copy trading experienced traders
You can also use eToro CopyTrader feature to copy the portfolios of other successful investors. There are popular investors who have a strong focus on defense stocks, such as the user “@defense_investor” who specifically invests in the defense sector.
Copy Trading does not amount to investment advice. Your investments’ value may go up or down. Your capital is at risk.
Pros and cons of investing in defense stocks
Let’s take a look at the advantages and disadvantages of being invested in the defense sector.
Some of the benefits of buying defense stocks
- Stable demand: Defense is a necessity, not a luxury. Hence, demand remains relatively consistent and in times of conflict or economic uncertainty, can rise.
- Long-term contracts: Defense firms often enjoy multi-year government contracts, ensuring revenue visibility. Many of these companies have large order backlogs.
- Diversification: Including defense stocks can diversify your portfolio, especially in turbulent times.
- Innovation-driven growth: Companies focusing on cutting-edge technology may see exponential gains and can profit in other ways than just defense spending.
Some of the drawbacks of investing in military stocks
- Policy shifts: Changes in government priorities can impact spending.
- Ethical concerns: Some investors avoid defense stocks due to moral reasons, which can affect stock popularity.
- Geopolitical risks: While tensions can benefit defense stocks, extreme instability or sanctions can be harmful.
- Capital-intensive industry: Regulatory and capital requirements, while they provide a high entry barrier to the business, can also eat into a company’s margins
Summary of the pros and cons of defense industry shares
Pros
- Stable demand for defense products, services
- Long-term government contracts
- Diversification
- High-tech innovation that can drive revenue streams
Cons
- Ethical concerns
- Policy changes can lead to volatility
- Geopolitical risk
- Capital-intensive industry
Methodology: Choosing the best defense stocks
We looked for stable, large-cap companies with exposure to the defense industry, with the emphasis on companies that are showing revenue and earnings growth, along with share growth. Many defense stocks offer solid dividends as well.
Defense stocks can be solid long-term investments with stable earnings growth, thanks to their long-term government contracts. Here are things we looked at when choosing the best defense stocks:
Does the stock have a significant competitive edge?
Some defense companies are so specialized that it’s hard for a competitor to cut into their market share. A good example is TransDigm Group, which has big margins because it has bought up much of its competition.
Does the company have balance?
While defense stocks primarily rely on government spending for revenue, some of the top defense stocks have solid commercial revenue streams, which give them more diversity. It makes a big difference if one company is saddled with a government contract with no inflation raises and another company, such as Boeing, also serves the commercial sector, where it can more easily raise prices.
Companies with a diversified portfolio of products and services across different defense segments are less reliant on a single contract or program.
Does it have an above-average dividend?
Many defense stocks, because they have stable cash flow, deliver an above-average dividend. That gives investors a steady stream of income on top of any potential stock price appreciation and encourages long-term investing.
What’s the stock’s financial health?
We looked for stocks with consistent growth in revenue and healthy profit margins, solid debt-to-equity ratio, good dividend history and reasonable valuations.
FAQs on defense stocks
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References
Stockholm Peace Research Institute report on military spending
Meta shifts to military technology
Lockheed Martin third-quarter earnings
Intuitive Machines agrees to acquire Lanteris Space Systems
Intuitive Machines third-quarter earnings
TransDigm Group fiscal fourth-quarter earnings
TransDigm Group to merge with Servotronics
L3Harris second-quarter earnings report
General Dynamics second-quarter report
Textron third-quarter earnings
Curtiss-Wright second-quarter earnings
iShares U.S. Aerospace & Defense ETF (ITA)
The Direxion Daily Aerospace & Defense Bull 3X Shares (DFEN)
Disclaimers:
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