Two Stocks Set to Soar on Higher Defense Spending

Last week, President Joe Biden released his FY25 defense spending proposal.

The top-line figure came in at a record high — the fifth straight year it has done so — totaling $895 billion.

And it would have been even higher if it weren’t stymied by the Fiscal Responsibility Act of 2023, which locked federal spending growth at 1%.

Prior to that cap being put in place (in exchange for raising the debt ceiling last year), the Pentagon was eyeing a national security budget of $929 billion.

Nevertheless, the budget increase will keep defense contractors busy enough until that cap expires in FY26.

Additionally, our allies in Europe are ramping up spending as well.

A record 18 NATO members are on track to hit the alliance’s oft-stated target of 2% of GDP this year — up from just three in 2014.

And some — those most threatened by Russia’s aggression — are exceeding it. 

Poland, for example, is spending roughly 4% of its GDP on defense this year. It’s also lobbying the alliance to raise its spending guidance from 2% to 3% of GDP. 

As a result, the NATO alliance will spend more than $1 trillion collectively on defense in 2024. And the United States will likely eclipse that mark by itself sometime around FY26/27. 

That bodes well for defense contractors. 

And if you’re looking to profit from this massive wave of defense spending, there are a few good stocks to start with. 

The first is General Dynamics (NYSE: GD).

GD has been on a tear this year, with shares climbing 10% since late January.

A strong end to 2023 is the biggest reason why.

Fourth-quarter revenue was up 7.5%, to $12 billion, while full-year revenue was up 7.3%, to $42 billion.

Quarterly earnings, meanwhile, hit $1 billion, or $3.64 per share, for the quarter and $3 billion, or $12.02 per share, for the year.

Its board of directors also approved a 7.6% dividend increase, setting the payout at $1.42 per share, payable on May 10.

With that, GD has raised its dividend in each of the past 27 years. Its new annualized payout is $5.68 per share, which yields a little more than 2%.

Lockheed Martin (NYSE: LMT) is another good option.

The world’s largest defense contractor had a sluggish start to the year, but it’s also up 4% in just the past month. 

Biden’s new defense budget proposal has played a part in that gain.

A Long-Range Anti-Ship Missile (LRASM) to deter China and a new ground attack weapon, the Precision Strike Missile (PrSM), to replace the Army Tactical Missile (ATACM) are among the Pentagon’s top priorities for FY25.

Both projects are headed by Lockheed Martin.

Separately, Lockheed recently announced plans to acquire spacecraft manufacturer Terran Orbital for $600 million.

That move will add technology, capacity, and synergy to Lockheed’s space unit.

Of course, if you really want to profit from the defense sector, you should check out my latest pick for Secret Stock Files. 

It uses cutting-edge AI technology to enhance warfighting capability. That makes it a prime candidate for massive growth in both the short and long term. 

You can find out more about that here.

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.

Be sure to visit our Angel Investment Research channel on YouTube and tune into Jason’s podcasts.

Want to hear more from Jason? Sign up to receive emails directly from him ranging from market commentaries to opportunities that he has his eye on. 

@OCSimpkins on Twitter