The Top 3 Defense Contractor Stocks

To be blunt, I don’t think there’s ever been a better time to be investing in defense contractor stocks.

WWII… The Cold War… The War on Terror…

All of these events triggered massive waves of defense spending — but none like the one we’re seeing right now. 

Global military spending reached $2.44 trillion dollars in 2023. That’s up from $2.2 trillion in 2022. This figure will probably be even higher this year — and still higher next year.

The United States alone is set to spend a record $895 on defense in the next year, with a military budget that is almost certain to top $1 trillion in the next presidential administration — regardless of who wins. 

Russia’s invasion has been wearing on Ukraine for the better part of three years now, and a breakthrough there will only inspire Europe to spend more on defense than it already is — which is a record amount.

Hamas’s attack on Israel triggered a massive regional war that Iran is gearing up to join in full (with Russia’s assistance). And the Pacific is living under the constant shadow of China’s massive defense outlay and inevitable invasion of Taiwan.  

So here we are. It’s a terrifying geopolitical landscape that’s poised to usher in an era of conflict and carnage that will supersede all that came before it. 

And defense contractor stocks are going to go wild as it unfolds.

In fact, they already are. These companies have been raking in billions upon billions of dollars as governments around the world stock, expend, and restock their arsenals. 

They’re working on the most advanced warfighting technologies and the highest-ticket weapons platforms.

They’re the only way you can safeguard (and really, expand) your wealth as the chaos unfolds. 

They pay solid and seemingly ever-rising dividends. 

They’re fully in bed with governments around the world giving them consistent, even unchallenged, access to massive multi-billion contracts. 

And these are the three best…

1. Lockheed Martin (NYSE: LMT)

Every single conversation about defense contractor stocks starts here with Lockheed Martin. 

It’s the world’s biggest defense contractor. And while it has its share of critics and contrarians, it always comes out ahead. 

Its stock is up 18% in the past month, 22% in the past year, and 45% since 2019. 

Of course that’s nothing when you consider it’s up roughly 2,000% since 1994. So if you started working back then, the stock would have furnished your retirement by now.

It also yields a 2.3% dividend. 

Lockheed Martin most famously makes the F-35 Joint Strike Fighter. The F-35 has been much maligned for setbacks and delays (many of which were attributable to the pandemic and resultant supply chain disruptions), but the fifth-generation aircraft is the company’s biggest revenue generator. 

The program is forecast to deliver over $2 trillion over its lifespan. And the resumption of F-35 deliveries is a big reason LMT stock is up over the past few weeks, along with a stellar second quarter earnings report.

Lockheed reported adjusted EPS of $7.11, beating estimates by $0.66. And revenue came in at $18.1 billion, roughly $1.1 billion higher than expected.

You can expect that momentum to continue forward as defense spending escalates.

2. RTX Corp. (NYSE: RTX)

Formerly known as Raytheon, RTX is undoubtedly the second-best defense contractor stock on the market in my opinion.

I’ve been riding this stock hard over the past year, because it fell to an absurdly low price of $70 per share last October. That was due to a product recall in its Pratt & Whitney division. 

Of course, I always knew it would bounce back. 

I said this so multiple times and even listed the company at No. 4 in “The Wealth Advisory’s Top 10 Stocks to Own” video in November, and calling it “The Best Bargain Buy in the Defense Sector” right here in February.

The stock was trading around $80 in November, had recovered to $90 per share in February, and today it’s back up over $115.

Like Lockheed Martin, it’s surged 40% in the past five years, and yields a dividend payout north of 2%.

RTX is a great defense pick because, among other things, it makes a lot of missiles and missile defense systems. 

For example, the Patriot missile system, which is one of the most trusted, effective, and frequently deployed anti-air defense systems in the world. 

It’s also a partner with Rafael on Israel’s Iron Dome, which has seen a lot of work lately and is poised to see even more to come. 

In fact, RTX and Rafael recently announced plans for a new $33 million production facility in Arkansas that will produce Tamir and SkyHunter missiles.

It also reported blockbuster second quarter earnings, with revenue of $19.7 billion, up from $18.3 billion a year ago and topping analyst estimates of $19.2 billion. 

And EPS hit $1.41, beating analyst estimates of $1.30.

3. Northrop Grumman (NYSE: NOC)

This last one was a bit of a toss-up. It could just have easily been General Dynamics (NYSE: GD) here in the No. 3 spot, but I went with Northrop Grumman due to the magnitude of its recent contracts.

Similar to RTX, Northrop Grumman stumbled earlier this year, when it took a nasty $1.56 billion pre-tax charge against its next-generation stealth bomber.

However, I expect the B-21 Raider to be a massive long-term revenue generator despite its setbacks — just like Lockheed’s F-35.

Additionally, Northrop Grumman is involved in a number of high-price tag defense initiatives, including the $13 billion Sentinel intercontinental ballistic missile (ICBM) program. 

The Sentinel is set to replace the Minuteman missile as our ground-based strategic deterrent (the nuclear missiles hiding in silos throughout the country).

Additionally, DARPA has tapped Northrop Grumman to develop a lunar railway concept as part of the 10-year Lunar Architecture (LunA-10) Capability Study.

No value for that contract was released, but it’s probably pretty high. That’s a lot of work and man-hours. 

And speaking of DARPA, Northrop Grumman also just completed assembly on another project it’d been working on for the clandestine agency — the “Manta Ray.”

The Manta Ray is an underwater drone designed to operate at long range for extended periods of time. It’s payload-capable, which means it can fire weapons and it eliminates the need for human logistics, which can be costly.

No doubt, we’ve already seen the massive effect aerial drones have had on the battlefield. But surface and submersible drones could have a similar impact on conflict. 

Ukrainian forces have already put them to good use, deploying remote-controlled speedboats laden with explosives to crash into Russian ships in the Black Sea.

The U.S. Navy aims to do the same. It even envisions combining fleets of undersea, ocean surface, and aerial drones to repel Chinese forces from the Taiwan Strait in the event of an attempted invasion. (That effort has been dubbed “Hellscape.”)

In any case, Northrop Grumman continues to ink massive contracts with the government — enough to outpace its recent setbacks. And with the direction we’re headed, it’ll have plenty of smaller contracts going forward as well. 

The bottom line: Defense contractor stocks are riding high right now, but there’s still a lot more room to run. These are the three best, with General Dynamics worth an honorable mention.

And again, if you’re looking long-term, defense contractors like these also kick out dividends north of 2% on top of their capital gains. 

Better still, I’ve got a whole report detailing defense sector income streams right here. It’s called “Pentagon Payouts” and it shows you how to rake in cash on a monthly basis. 

So check that out if you haven’t seen it yet.

Fight on,

Jason Simpkins

Simpkins is the founder and editor of Secret Stock Files, an investment service that focuses on companies with assets — tangible resources and products that can hold and appreciate in value. He covers mining companies, energy companies, defense contractors, dividend payers, commodities, staples, legacies and more…

In 2023 he joined The Wealth Advisory team as a defense market analyst where he reviews and recommends new military and government opportunities that come across his radar, especially those that spin-off healthy, growing income streams. For more on Jason, check out his editor’s page.

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