In this article, we will take a look at the 10 Best American Defense Stocks To Buy According to Hedge Funds.
“Geopolitics can be expected to drive increased defense spending in the years ahead, creating solid investment opportunities,” said Steve Barry, global head of fundamental equity at Goldman Sachs Asset Management, in a midyear outlook report. Around two and a half years ago, the global landscape shifted dramatically due to Russia’s full-scale invasion of Ukraine. This invasion heightened geopolitical tensions and pushed NATO and European nations to reevaluate their security policies after years of relative complacency, recognizing the looming threat on their borders. In October of last year, another pivotal event occurred when Hamas attacked an Israeli music and arts festival, sparking a powerful military response from Israel in the Gaza Strip. These events have further solidified the focus on national security, making it a central issue in political discussions worldwide.
It’s well known that investing in defense contractors tends to pay off when geopolitical tensions rise, but Wall Street sees more driving the latest rally. The recent surge in shares of weapons and aircraft manufacturers, fueled by escalating conflicts in the Middle East, is just part of the story. Analysts point to several other factors poised to push these stocks even higher. These include the Federal Reserve’s easing cycle, the prospect of lucrative contracts for aerospace firms as airlines update their fleets, and the sector’s relatively low exposure to risk from the upcoming U.S. presidential election. While the election outcome remains uncertain, one thing appears likely: regardless of who wins, military spending in the U.S. is poised to increase in 2025 and beyond. Both the Biden-Harris administration and current lawmakers have already demonstrated their willingness to boost defense budgets, with the Senate and House having approved an increase in the 2025 Pentagon budget, which includes additional funding for the F-35 fighter jet program.
On an October 1 episode of CNBC’s The Exchange, Sheila Kahyaoglu, a defense analyst at Jefferies, discussed the impact of Iran’s missile strikes on defense stocks, while also examining U.S. defense spending in the context of ongoing global conflicts, highlighting how these developments could influence the defense sector:
“Investors have been positioned very bullishly, given what the S&P has been doing, making all-time highs several times this year. So, we’re seeing that rotation reversal into the defense names like the Boeings of the world, which have a little bit more data. In terms of the defense budget though, what we’re seeing is a continuing revolution running through fiscal 2025 that starts today. So basically, we’re seeing the can kicked down the road until after the election. Our base case for that, including inflation, is about 3% growth.”
See also: 8 Best Drone Stocks to Buy Now.
In another vein, the space sector is emerging as a vital component of the defense industry’s future. U.S. spending on space-related defense initiatives has surged, with the U.S. Space Force (USSF) requesting $30.1 billion for fiscal year 2024—a 15% increase from the prior year. This upward trend is expected to persist into 2025 and beyond. As the largest user of satellite services in the military, the U.S. Army depends heavily on space-based assets for essential functions such as communication, navigation, weather forecasting, and early missile launch detection.
Photo by Cibi Chakravarthi on Unsplash
Our Methodology
To compile our list of the best American defense stocks, we started by identifying the largest companies in the defense sector. Next, we analyzed hedge fund sentiment for these firms using Insider Monkey’s proprietary database, which tracks 912 elite money managers. We then focused on the stocks that were most widely held by hedge funds and ranked them in ascending order based on the number of hedge fund holders as of Q2 2024.
At Insider Monkey we are obsessed with the stocks that hedge funds pile into. The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
10. L3Harris Technologies, Inc. (NYSE:LHX)
Number of Hedge Fund Holders: 40
L3Harris Technologies, Inc. (NYSE:LHX), a leading American tech firm known for its expertise in surveillance systems, microwave weaponry, and electronic warfare, was formed from the merger of L3 Technologies and Harris Corporation in June 2019.
On October 18, Truist Securities raised its price target for L3Harris Technologies, Inc. (NYSE:LHX) from $250 to $293, maintaining a Buy rating on the stock. The update reflects strong domestic and international demand, which will allow the defense company to increase its 2024 outlook slightly. This optimistic forecast is supported by a projected book-to-bill (B2B) ratio above 1x in Q3 2024. Although margins in Integrated Mission Systems (IMS) and Aviation Reconnaissance (AR) may shrink in the second half of the year due to product mix, there remains upside potential for AR.
Additionally, in August, L3Harris Technologies, Inc. (NYSE:LHX) secured a $587.4 million U.S. Navy contract for tactical jamming pods over the next five years. In Q2 2024, the company saw a 9% rise in non-GAAP earnings per share and reported a significant $32 billion backlog. The acquisition of Aerojet Rocketdyne continues to boost performance, adding about $600 million in Q2 revenue.
As of Q2 2024, 40 hedge funds held positions in L3Harris Technologies, Inc. (NYSE:LHX).
9. Woodward, Inc. (NASDAQ:WWD)
Number of Hedge Fund Holders: 41
Woodward Inc. (NASDAQ:WWD), an American firm specializing in control systems and components for the aerospace and industrial sectors, delivers innovative solutions for aircraft engines, industrial turbines, and power generation systems.
Earlier this July, Woodward Inc. (NASDAQ:WWD) was selected by Boeing to develop advanced hydraulic controls for the X-66 project, a joint effort between Boeing and NASA aimed at creating a low-drag configuration to reduce fuel consumption and emissions in single-aisle aircraft.
Woodward Inc. (NASDAQ:WWD) also announced a quarterly cash dividend of $0.25 per share following its fiscal Q3 2024 earnings report, which highlighted a 6% rise in net sales. The company revised its full-year sales guidance to a range of $3.25 billion to $3.3 billion. Notably, its Aerospace segment posted $518 million in sales for the quarter, an 8% increase year-over-year.
As of Q2 2024, 41 hedge funds held positions in Woodward Inc. (NASDAQ:WWD), according to Insider Monkey’s database.
8. The Boeing Company (NYSE:BA)
Number of Hedge Fund Holders: 42
The Boeing Company (NYSE:BA) is a leading American multinational corporation specializing in the design, production, and sale of aircraft, rotorcraft, rockets, satellites, telecommunications equipment, and missiles globally. The company also provides leasing and product support services.
The Boeing Company (NYSE:BA) reported a disappointing Q3 earnings report, with the company’s net loss coming in at $6.17 billion, bringing its total losses for 2024 so far to nearly $8 billion, along with a negative operating cash flow of $1.34 billion. Revenue was around $17.8 billion, a slight 1% decrease from the same period last year, aligning closely with earlier projections. On the earnings call, CFO Brian West noted Boeing expects additional cash outflows in Q4 and projects negative free cash flow for the full year of 2025. “Turning this big ship around will take time, but when it does, it has the potential to be great again,” he said in a message to employees.
On a positive note, Boeing’s cash and cash equivalents (including short-term and other investments) stood at $10.47 billion by the end of Q3 2024, surpassing its current debt of $4.47 billion.
To address financial challenges and operational inefficiencies, The Boeing Company (NYSE:BA) filed a registration statement with U.S. regulators, allowing it to raise up to $25 billion through debt securities and other stock offerings. Additionally, the company managed to secure a $10 billion credit line from a consortium of banks, including BofA, to strengthen its financial position in light of a major worker strike affecting production.
7. Howmet Aerospace Inc. (NYSE:HWM)
Number of Hedge Fund Holders: 45
Howmet Aerospace Inc. (NYSE:HWM) is an American aerospace company that provides essential engineered solutions for the aerospace, defense, and transportation industries. Its diverse portfolio includes engine products, fastening systems, engineered structures, and forged wheels, which play a key role in defense applications such as fighter jets, military aircraft engines, and industrial gas turbines.
In its Q2 2024 financial report, Howmet Aerospace Inc. (NYSE:HWM) exceeded analysts’ expectations, posting earnings per share of $0.67, surpassing the estimate of $0.601 and marking a 52% year-over-year increase. The company’s revenue for the quarter reached $1.93 billion, a strong 14% year-over-year growth, with commercial aerospace and defense segments making significant contributions. Notably, its defense aerospace revenue saw an 11% increase, fueled by high demand for fighter programs and engine spares.
On October 18, Truist Securities raised the price target for Howmet Aerospace Inc. (NYSE:HWM) shares to $123, up from the previous target of $105, while maintaining a Buy rating. This adjustment follows the company’s Q3 2024 guidance, which projects revenues at the midpoint of $1.855 billion, EBITDA at $465 million, and adjusted EPS at $0.64. In the past 30 days, the consensus EPS estimate for the quarter has been revised up by 0.2%.
Janus Henderson Contrarian Fund stated the following regarding Howmet Aerospace Inc. (NYSE:HWM) in its Q2 2024 investor letter:
“Howmet Aerospace Inc. (NYSE:HWM), a manufacturer of specialized aircraft components, was another top contributor to relative performance. The stock experienced a notable performance boost after beating first-quarter earnings expectations and raising full-year guidance. The company benefited from a resurgence in air travel, pushing commercial aerospace sales up by 23%. Despite the potential sales impact from Boeing’s 737 MAX production challenges, the extended operation of existing airline fleets could lead to heightened demand for spare parts, offsetting concerns.”
6. General Dynamics Corporation (NYSE:GD)
Number of Hedge Fund Holders: 48
General Dynamics Corporation (NYSE:GD) is a global leader in aerospace and defense, renowned for delivering innovative solutions across sectors like nuclear-powered submarines, land combat systems, and advanced IT services.
On October 25, RBC Capital Markets raised its price target for General Dynamics Corporation (NYSE:GD) from $320 to $330, maintaining an Outperform rating. The adjustment came after the defense company posted Q3 earnings of $3.35 per share, beating RBC’s estimate of $3.27 but missing the broader market consensus due to lower-than-expected G700 aircraft deliveries. Total revenue for the quarter rose 10%, driven by strong performance in the Aerospace and Marine divisions. The Aerospace segment was notably strong, which RBC sees as a key area for potential margin expansion.
Moreover, General Dynamics Corporation (NYSE:GD) also managed to secure key contracts in September of this year, including $299 million for Pentagon network infrastructure upgrades and $491.6 million from the Space Development Agency.
Looking ahead, General Dynamics Corporation (NYSE:GD) expects a robust fourth quarter and forecasts full-year revenue of approximately $48 billion, with Aerospace sales projected at $12.3 billion and Marine Systems at $13.9 billion.
5. Northrop Grumman Corporation (NYSE:NOC)
Number of Hedge Fund Holders: 49
Northrop Grumman Corporation (NYSE:NOC) is a prominent defense contractor, recognized for its advanced aircraft systems and pivotal role in national security. With 95,000 employees and annual revenues exceeding $30 billion, it ranks among the world’s leading producers of military technology and weaponry.
The company has made significant progress in defense partnerships and contracts, including an expanded collaboration with Denmark’s Terma to focus on uncrewed aerial systems, electronic warfare, and missile defense. It also secured a $161 million contract from the U.S. Navy to produce and deliver JCREW/DRAKE 2.0 systems, a cutting-edge electronic countermeasure technology.
In addition, the defense contractor has made significant strides with AI, having included the tech’s capabilities to its Forward Area Air Defense (FAAD) Advanced Battle Manager (ABM) system, enhancing real-time decision-making for U.S. military forces, allies, and coalition partners.
On October 25, Susquehanna reaffirmed its Positive rating on Northrop Grumman Corporation (NYSE:NOC) and raised its price target from $560 to $625. The upgrade followed Northrop Grumman’s third-quarter earnings beat, driven by higher operating margins and stronger financial performance. The company reported $730 million in free cash flow for the quarter, signaling solid progress toward its full-year 2024 free cash flow target of $2.5 billion.
4. HEICO Corporation (NYSE:HEI)
Number of Hedge Fund Holders: 53
HEICO Corporation (NYSE:HEI), a leader in aerospace and electronics, manufactures products used in aircraft, spacecraft, defense systems, medical devices, and telecommunications equipment.
In its Q3 2024 report, HEICO Corporation (NYSE:HEI) reported impressive financial results, with consolidated operating income up 45% and net sales increasing by 37%. The company posted a record net income of $136.6 million, reflecting 34% growth. This strong performance prompted Deutsche Bank and Baird to raise their price targets, both maintaining positive ratings. Despite a slight decline in sales from the Electronic Technologies Group (ETG) due to weaker demand in electronics and medical products, HEICO Corporation (NYSE:HEI) remains confident in its future growth.
Additionally, the company completed the acquisition of a 92.5% stake in Marway Power Solutions on October 1, a company specializing in power distribution systems for critical applications. Although the financial terms were not disclosed, HEICO Corporation (NYSE:HEI) expects the acquisition to positively impact earnings in the next year.
3. RTX Corporation (NYSE:RTX)
Number of Hedge Fund Holders: 54
RTX Corporation (NYSE:RTX), a leading aerospace and defense company, provides systems and services to global commercial, military, and government clients. It operates through four key segments: Collins Aerospace, Pratt & Whitney, Raytheon Intelligence & Space, and Raytheon Missiles & Defense.
TD Cowen remains optimistic about RTX Corporation (NYSE:RTX), maintaining a Buy rating and setting a price target of $142. This confidence was bolstered by an update from Germany’s MTU Aero Engines, which raised its C24 EBIT guidance by around 5% following strong third-quarter results, a boost that was partly due to the success of Pratt & Whitney’s “Fleet Management Plan,” where MTU has an 18% revenue share.
RTX Corporation (NYSE:RTX) has also made significant strides by passing the U.S. Army’s counter-drone technology tests, showcasing the effectiveness of its Ku-band Radio Frequency Sensor and Coyote Block 2 and Block 3 interceptors. Additionally, the company secured a $736 million contract with the U.S. Navy for the production of the AIM-9X SIDEWINDER Block II missiles.
2. Lockheed Martin Corporation (NYSE:LMT)
Number of Hedge Fund Holders: 56
Lockheed Martin Corporation (NYSE:LMT), formed through the 1995 merger of Lockheed Corporation and Martin Marietta, is a global leader in aerospace, defense, arms, information security, and technology. The company operates across four key segments: Aeronautics, Missiles and Fire Control, Rotary and Mission Systems, and Space.
TD Cowen recently raised its price target for Lockheed Martin Corporation (NYSE:LMT) from $560 to $610, maintaining a Buy rating on the stock. This adjustment followed Lockheed Martin’s third-quarter EPS, which exceeded analyst expectations, though the company’s medium-term sales growth is viewed as modest compared to the anticipated mid-single-digit growth. TD Cowen emphasized the company’s strong position in the defense industry, with a particular focus on its international sales and short-cycle leverage in the Missiles and Fire Control (MFC) segment.
Looking ahead, Lockheed Martin Corporation (NYSE:LMT) is increasing its 2024 profit and sales outlook, projecting earnings per share of $26.65 and full-year sales of $71.25 billion. Despite some concerns in the Aeronautics segment and a 3% sales drop in Q3, the board also approved a quarterly dividend increase and expanded its share buyback program by $3 billion.
Moreover, the defense leader managed to secure several significant contracts, including a $297 million NASA deal to develop GeoXO Lightning Mapper instruments for the National Oceanic and Atmospheric Administration (NOAA).
1. GE Aerospace (NYSE:GE)
Number of Hedge Fund Holders: 86
GE Aerospace (NYSE:GE) is a leading American defense stock, recognized for its pivotal role in aerospace, particularly in the development and production of military aircraft engines. Its Aviation segment plays a critical role, providing essential propulsion technology to defense contractors and military forces worldwide.
GE Aerospace (NYSE:GE) has been showing strong quarterly performance, prompting UBS to maintain a positive outlook and raise its price target to $230. The company’s steady revenue growth, expanding margins, and strong cash flow generation for Q3 have been notable, even with ongoing supply chain challenges. The company’s revenue and EBIT for the quarter met consensus expectations, boosting UBS’s confidence and leading to increased EBIT projections for 2027 and 2028. Though there are concerns about a potential reversal of mix benefits in 2025, the firm expects only a modest impact on the company’s financials. The anticipated reduction of 700-800 LEAP engine deliveries this year is also projected to contribute roughly a $0.10, or 2%, boost to 2024 earnings per share EPS.
Additionally, despite profit declines in the Defense & Propulsion Technologies segment and a 4% dip in total engine deliveries due to supply chain issues, the company remains optimistic, with the Commercial Engines & Services segment seeing a 29% jump in orders and a 10% rise in services revenue. Additionally, GE Aerospace (NYSE:GE) is investing $1 billion in MRO to boost aftermarket capacity, including the launch of a new LEAP MRO facility in Poland.
While we acknowledge the potential of GE, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than GE but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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