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Defense and aerospace stocks generally have been producing potent share price appreciation during 2025 and are expected to remain on the rise, top industry analysts predict. One key catalyst is that governments worldwide are stepping up military spending.
Russia's invasion of Ukraine is continuing to rage almost four years after starting to inflict death, destruction and the deployment of destructive drones. In addition, defense-related spending shows no signs of slowing with other conflicts in the Middle East, Africa and elsewhere.
European Union (EU) member countries are united in fortifying their military readiness to deter Russia's leaders from extending their ongoing aggression beyond Ukraine. The EU's executive arm recently proposed a 2 trillion euro (US$2.31 trillion) budget for the bloc, with defense funding gaining significant support.
Plans now are in place for the EU to spend 1.26% of the bloc's average gross national income during a seven-year period starting in 2028. The U.S. Senate recently passed a record $901 billion defense spending bill that President Trump signed on Dec. 18. The fiscal 2026 National Defense Authorization Act (NDAA) is a compromise between separate measures passed earlier this year in the House of Representatives and Senate, authorizing annual military spending that would give a 4% pay raise to America's troops.
The bill easily passed the Senate, 77-20, and the House, 312-112. The new law also authorized changes for acquiring military equipment and included attempts to enhance America's competitiveness with China and Russia.
Defense Stocks Show Strength Amid Conflicts: GD
Reston, Virginia-based General Dynamics Corp. (NYSE: GD), a buy recommendation of Citi Research, engages in providing technologically advanced business jets, wheeled combat vehicles, command and control systems and nuclear submarines. Those products and services are offered through its four business groups: Aerospace, Marine Systems, Combat Systems and Technologies. Its share price has risen nearly 30% so far this year, and the stock seems posed for a strong 2026, too, according to aerospace and defense sector specialists.
General Dynamics will continue to benefit from increasing geopolitical tensions, said Michell Connell, who heads Dallas-based Portia Capital Management. GD currently pays a dividend yield of 1.75%. Over the past 10 years, the company has an annualized dividend growth rate of almost 9%.
The company also has increased its dividend each of the past 26 years, Connell continued. Sell-side analysts forecast that GD's earnings growth is expected to average 11% through 2029. That far exceeds the outlook for Lockheed Martin (NYSE: LMT) and L3 Harris (NYSE: LHX), Connell said.
Michelle Connell heads Portia Capital Management.
The company is considered one of the strongest financially in the defense industry. With a debt-to-equity ratio of .42 and the company earning 16 times its interest payable, General Dynamics can add debt, if necessary, Connell counseled.
In addition, 77% of the company's total revenue comes from its defense divisions. These include: combat systems, marine systems and defense technologies. These business segments are responsible for producing vehicles, munitions and submarines that are used by the United States, as well as other countries. Over the last nine months, the revenues for the defense segment grew by 13.8% for a total of $4.1 billion.
"Investors can take solace that demand for GD's defense products will remain strong for the foreseeable future," Connell told me.
As of Sept. 30, the order backlog for these GD segments reached $89.3 billion, and the book to bill ratio grew to 1.6 to 1.
"Defense will continue to be a big business," Connell said.
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Jim Woods recommends Howmet Aerospace Inc. (NYSE: HWM) in the Top 10 Growth Accelerators portfolio in the Investing Edge newsletter he leads. Howmet Aerospace is an advanced engineering company in Pittsburgh that is a traditional defense giant. But it provides critical components in the F-35 joint strike fighter that hits Mach 1.6 under the thrust of potentially the most advanced engine on earth.
Paul Dykewicz meets with Jim Woods, who heads Investing Edge.
The joint strike fighter is built with cutting-edge materials, integrated airframe design and next-generation avionics to enable the fifth-generation fighter jet to operate with potentially unprecedented stealth, speed and agility in air-to-air and air-to-ground combat, company officials said. In developing the complex fighter jet, Lockheed Martin (NYSE: LMT) turned to Howmet to provide key parts that include single-piece, forged aluminum bulkheads that form the backbone of the aircraft structure and save 300 to 400 pounds per jet, while cutting costs by 20%.
The fighter jet also has titanium bulkheads and uses titanium to manufacture other airframe structures for all three F-35 JSF variants. Howmet further supplies single-crystal, nickel-based super alloy blades and vanes that operate in environments hotter than the melting point of the metal to propel the engine.
Howmet is currently up 72.29% as of its recommendation on January 15, 2025, including dividend payments. Without the dividends, the gain would be 71.92%. The stock's current dividend yield is a modest 0.23%.
"The present and future of armed conflict is drones, and Howmet Aerospace makes the engine and guidance components that make those drones fly," said Woods, whose resume includes a stint in U.S. Army special operations.
Howmet is one of two defense stocks he recommended on January 15, 2025, just before they both took off and produced large gains.
Chart courtesy of www.stockcharts.com.
Defense Stocks Show Strength Amid Conflicts: PLT
The other stock that Woods recommended on January 15, 2025, actually has outperformed Howmet. The stock is Denver-based Palantir Technologies Inc. (NASDAQ: PLTR), up 170.30% in less than a year.
"Palantir Technologies is an absolute juggernaut of a stock, and it makes the most-sophisticated software used to combat threats to both individuals and government and other organizations. The company has posted a three-year annual earnings-per-share (EPS) growth rate of an incredible 132%, which has help vault it into the top 1% of all companies on an EPS growth basis."
Palantir seeks to operate as the "connective tissue" between Army personnel, data and resources by delivering critical information to the key decision-makers when needed, company officials stated. Its technology enhances the preparedness of soldiers who use wearable sensor and mobile technologies in the battlefield.
But the huge amount of data produced risks overwhelming both the individual soldiers and the battlefield decision-makers who lead them. Palantir tries to harness hardware solutions, reduce system complexity and provide improved human-machine interfaces to aid soldiers in the field and commanders at a forward-operating base (FOB). Situational awareness powered by visual augmentation, sensor optimization and secure capabilities helps to reduce cognitive challenges, as well as to protect and to connect warfighters.
Those who recall the U.S. special forces locating al-Qaeda founder Osama bin Laden's compound in Abbottabad, Pakistan, where he was killed on May 2, 2011, may appreciate knowing that a Palantir software product called "Gotham" was rumored to have been used by counterterrorism analysts at U.S. government agencies to integrate and analyze data. The information could have included intelligence reports, surveillance and reconnaissance.
When it comes to military operations, aggression, manpower and firepower still require the right intelligence to win battles, Woods said. Palantir is a star performer in the Top 10 Growth Accelerators portfolio of Investing Edge.
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Lockheed Martin (NYSE: LMT), of Bethesda, Maryland, is a defense and aerospace company formed in a 1995 combination of Lockheed Corporation and Martin Marietta Materials, Inc. In enlarged size, Lockheed Martin focuses on defense, space, intelligence, homeland security and information technology. LMT is a Citi Research buy recommendation that offers a current dividend yield of 2.86%.
The company's key business segments are Aeronautics, Missiles and Fire Control (MFC), Rotary and Mission Systems (RMS) and Space. Lockheed Martin's management recently laid out the case that margins are likely to trough in 2024 and drift toward 11%-plus over time, driven largely by product mix.
The loss-making classified contract at Lockheed Martin's MFC business will be a tailwind in 2025, i.e., lower forward loss charges, while the rest of the margin accretive MFC portfolio is likely to grow faster than the rest of the company. Plus, new awards across the company better reflect the current cost environment and should produce margins higher than pre-pandemic backlog, according to a Citi Research note.
Chart courtesy of www.stockcharts.com.
Defense Stocks Show Strength Amid Conflicts: BAESY
London-based BAE Systems PLC (OTCMKTS: BAESY) is a multinational arms, security and aerospace company that pays a 1.94% dividend yield and should benefit from NATO nations' commitment to more than double spending in the next decade. Due to Europe's rearmament cycle, Wall Street analysts lifted their average defense stock target prices by 25% earlier this year and remain bullish, Connell counseled.
Many European countries have publicly pledged to expand their defense spending. Those countries include Denmark, the United Kingdom, Germany and Poland.
The investment firm JP Morgan wrote in a research note that it expects revenue estimates to increase by at least 10% for these EU defense companies. One of the EU sovereign funds is removing its prohibition of investments in defense companies, Connell commented. A European politician questioned how governments can increase defense spending, but their sovereign funds are not allowed to invest further in these companies.
"In February 2024, BAE acquired Ball Aerospace to add to its space mission product line," Connell continued. "These synergies should assist BAE in reaching its 10% sales growth target starting this year."
On July 1, BAE announced the second tranche of its 1.5 billion pound share buyback. The first tranche, initiated in 2023, totaled 500 million British pounds. The second tranche of 500 million pounds is slated for completion by June 2026. That will leave one additional tranche of 500 million pounds for the future.
"This repurchase program increases BAE's opportunity for share appreciation," Connell said.
Chart courtesy of www.stockcharts.com.
Defense Stocks Show Strength Amid Conflicts: Geopolitical Risk
President Trump and his administration's diplomats keep seeking a peace agreement between Ukraine and Russia. But Russia's role as the aggressor and demand to receive additional land beyond what it has seized on the battlefield is a continuing block on progress. Recent polls indicate roughly 75% of Ukrainians who responded oppose offering any land to Russia. The sentiments reflect the sacrifices endured by Ukrainians to defend their freedom and protect against Russia's sustained assaults.
A Ukrainian soldier, interviewed by the BBC, said he opposed handing over any land to Russia. The soldier responded that Russia's President Vladimir Putin would seek even more land in the future. Many observers speculate that Putin also may attack other nearby countries when he decides the timing is right.
Claims by Russia's leaders that they seek peace belie the reality of attacking non-soldiers, including Ukraine's mothers and children who continue to be killed and injured severely. However, increased prosperity typically occurs for countries that have the greatest freedom. Mark Skousen, PhD, the Doti-Spogli Chair of Free Enterprise at Chapman University in Orange County, California, is a free-market economist who travels the world to praise freedom as a conduit to open opportunities for prosperity across the globe.
Mark Skousen heads Forecasts & Strategies.
President Trump is willing to pledge U.S. commitment to defending Ukraine if its leaders agree to a peace plan, but details have yet to be shared. Trump also has asked other countries to boycott Russian oil to reduce funding of the attacker's war machine. The idea has gained support, but not enough to stop the war.
Despite President Trump's repeated calls for an end to the killing, Russia's president and his empire-building cadre of fellow leaders remain undeterred. The war is threatening to worsen further if Putin and his comrades in the country's leadership keep trying to deflect attention away from Russia's worsening economy. Instead, Russia's strategy seems to be to force its citizens to fight and die, despite limited territorial gains since the early phase of its invasion.
Russia's military keeps innocent civilians in Ukraine with little apparent regard for human life, according to the United Nations. The attacker's tactic of charging ahead to gain portions of Ukraine's territory after Russia's initial invasion gains nearly four years ago has drawn criticism from many military strategists. Thus, Russia's leaders have pursued a protracted war, rather than enhanced economic growth and trade agreements that President Trump is offering both sides in the conflict to end the fighting. | | | Sincerely,
Paul Dykewicz, Editor
StockInvestor.com
| | About Paul Dykewicz: Paul Dykewicz is an accomplished, award-winning journalist who has written for Dow Jones, the Wall Street Journal, Investor’s Business Daily, USA Today, Seeking Alpha, GuruFocus and other publications and websites. Paul is the editor of StockInvestor.com and DividendInvestor.com, a writer for both websites and a columnist. He further is the editorial director of Eagle Financial Publications in Washington, D.C., where he edits monthly investment newsletters, time-sensitive trading alerts, free e-letters and other investment reports. Paul also is the author of an inspirational book, "Holy Smokes! Golden Guidance from Notre Dame's Championship Chaplain", with a foreword by former national championship-winning football coach Lou Holtz. Follow Paul on Twitter @PaulDykewicz. | | | | | |
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