Donald Trump is a vocal critic of international conflicts, especially those in which the US gets involved militarily or financially. At his inauguration, he continued the old Republican policy of Peace Through Strength, implying that the US and its allies should increase defense spending not to fight more wars but to ensure fewer wars happen.
In other words, this means defense contractors continue to make money even if global conflicts die down under Donald Trump. EU leaders have just held an informal meeting to discuss transatlantic relations and defense spending. President of the European Commission, Ursula von der Leyen, is considering extraordinary measures to boost defense budgets.
Under these circumstances, it is vital to understand that most defense and aerospace stocks should continue to benefit even during peaceful times. We, therefore, decided to create a list of stocks that are likely to survive any change in policy during the unpredictable Donald Trump’s term.
To come up with our list of 10 Defense and Aerospace stocks that will benefit from Trump’s Peace Through Strength policy, we only considered stocks that have a market cap of at least $5 billion, an ROE of over 15%, and a forward PE under 40 against an industry average PE of 63.
10. BWX Technologies Inc. (NYSE:BWXT)
BWX Technologies Inc. is a nuclear component manufacturer and distributor that operates through commercial and government operations. It is mainly a defense contractor that specializes in developing and sustaining nuclear reactors for the US Navy. The company recently announced that it secured 2 contracts for nuclear energy projects worth more than a billion Canadian dollars.
As per the first contract, BWXT will develop 48 steam generators for the Pickering Life extension program which is in its initial phase. The company is manufacturing generators at its Cambridge facility and the completion of the project is predicted in mid-2030. Under the second contract, the company will build the reactor pressure vessel for the BWRX-300 small modular reactor.
In addition to the rewarding contracts, the company’s stock performance was quite good in the second half of the previous year. BWXT’s stock experienced an upward momentum right after the US election, though it calmed down after the election gradually returning to the position it was at before the election. Investors should keep in mind the company’s strong fundamentals and take this decline in prices as an opportunity for a better outcome later in the year.
9. Curtiss-Wright Corporation (NYSE:CW)
Curtiss-Wright Corporation is an engineered product, services, and solutions provider to commercial power, aerospace & defense, process, and general industrial markets. It operates in defense electronics, aerospace & industrial, and naval & power segments. The company released its Q3 earnings report recently and showed an outstanding performance.
According to the report, aerospace & industrial revenue went up by 4%, defense electronics revenue rose by 12%, and naval & power sales grew by 14%. As a result of the strong Q3 performance the company increased its FY 2024 financial guidance. The expected revenue growth is 7-9% while the expected operating income growth is 7-10%.
Analyzing the company’s attractive financial guidance and stock performance over the previous year, it might continue to draw investors’ attention as countries boost their defense spending. The stock outperformed the market by gaining over 50% in the last year and has the potential to consistently deliver high single-digit growth.
8. Embraer S.A. (NYSE:ERJ)
Embraer S.A. is a developer, designer, manufacturer, and seller of aircraft and systems. It operates in defense & security, services & support, commercial aviation, executive aviation, and other segments. Despite the fact that analysts were pessimistic about the stock at the end of the previous year, positive news has started emerging.
The company received firm orders from Uruguay’s Air Force for five A-29 Super Tucano light-attack aircraft. The order was a result of a contract signed in August and includes integrated logistics services, mission equipment, and a flight simulator. Moreover, the firm released its final quarter deliveries for 2024 which indicated a 27% increase in aircraft deliveries as compared to the previous quarter.
For FY 2024, ERJ recorded a 14% gain from the previous year with a total of 206 aircraft being delivered in the full year. Embraer’s stock started gaining upward momentum within a few days after it announced its final quarter deliveries report. The company’s share price was up 7% in January and is set to be a consistent performer in 2025.
7. General Dynamics Corporation (NYSE:GD)
General Dynamics Corporation is a defense and aerospace company that operates through technologies, marine systems, aerospace, and combat systems. It has had a poor start to the year, falling right after the earnings report which we view as a buying opportunity.
GD’s growth story for 2025 is compelling. Management estimates a growth rate of 5.5% backed by margin expansion and as a result, earnings growth. The company already has a strong balance sheet and is trading just above its 52-week lows. Consequently, the forward PE has dropped to below 18, presenting an opportunity to take a position in the stock.
Some of the recent pessimism surrounding the stock stems from its inability to deliver the aerospace deliveries it guided. The main reason for this could have been the issue with the G700 certification, which resulted in additional testing, complexity, and non-standard workflow where the company lost valuable resources. The hiccup is in the past though as deliveries are back on schedule.
6. GE Aerospace (NYSE:GE)
GE Aerospace develops defense and commercial aircraft engines, electric power, integrated engine components, and mechanical aircraft systems. The company also provides aftermarket services. A 21% YTD return has allowed the stock to touch 52-week highs as all the growth engines continue to perform strongly despite minor hiccups.
GE Aerospace released its Q4 earnings last month and a 46.6% order growth together with a 16% organic growth was the best performance by the company since Q2 2023. The company’s growth is being driven by two factors.
First, the investments in the LEAP program are likely to keep bringing benefits. The LEAP program aims to develop fuel-efficient aircraft engines. Airbus and Boeing continue to rely on GE Aerospace’s LEAP engines for some of their aircraft. The LEAP 10A durability kit was certified by the US and EU aviation regulatory authorities in December, so everything seems to be on track.
Second, the company’s Flight Deck program helps it address any supply chain issues as soon as they arise. In Q4, the company improved its output by 19% according to the management, based primarily on improvements through the Flight Deck program.
On top of these two factors, the company continues to expand its aftermarket capabilities, aiming to generate higher revenue from these services in the next five years. This sets up the company well as a growth investment going forward.
5. HEICO Corporation (NYSE:HEI)
HEICO Corporation is a manufacturer, designer, and supplier of aerospace, electronic, and defense-related products and services. It operates through two segments: the electronic technologies group (ETG) and the flight support technologies group (FSG). HEI continues to be a defense growth story as well as a beneficiary of the air travel recovery witnessed in the past year.
KeyBanc Capital Markets rated the stock Sector Weight last month when its analysts initiated coverage on the company. The reason for this was the current valuation that the industry trades at, which is above the historic valuation range. This limits future gains. However, HEI’s unique market position enables it to survive any industry-wide downturn, especially if the air travel recovery slows down as this is a discretionary expenditure for many.
On the other hand, defense spending may not necessarily slow down even if Donald Trump is able to resolve international disputes. To maintain peace, countries will be willing to increase defense spending and that should benefit HEI.
The company’s USP is that it makes quality equipment that sells at 30%-40% less than competitors. As long as it is able to maintain this advantage, it should be able to do well even if all the potential headwinds materialize.
4. Woodward Inc. (NASDAQ:WWD)
Woodward Inc. is a Colorado-based company leading in energy conversion and control solutions for the aerospace and industrial sectors. Recently, the company announced a 12% rise in its quarterly dividend, from $0.25 to $0.28. While this assures commitment to shareholders, many analysts believe that the giant is prioritizing short-term shareholder returns. This view particularly stems from the management’s statement regarding potential risks surrounding future revenue projections.
Although the CEO of Woodward, Chip Blankenship, has highlighted major lean transformation, operational improvements, and automation investments, the success of these initiatives is limited by ongoing supplier challenges and labor issues. Moreover, analysts are also wary of the declining industrial segment sales due to shrinking China on-highway sales.
The leadership still finds supply chain issues as the reason behind not achieving pre-COVID normalcy. Despite the Safran acquisition improving electromechanical actuation, without a proper supply system, the company is unable to reap complete benefits from the M&A. Despite these issues, the company is a solid bet on increased defense spending globally.
3. Howmet Aerospace Inc. (NYSE:HWM)
Howmet Aerospace Inc. is an advanced engineered solutions provider for the transportation and aerospace industries. The company operates through fastening systems, forged wheels, engine products, and engineered structure segments.
Howmet Aerospace can be considered an AI play in addition to its services to the aerospace industry. Its Industrial Gas Turbines are in demand due to AI and data center energy needs. Moreover, as the US and EU continue to move towards environment-friendly energy options, these turbines are likely to see an increase in demand. These two factors should continue to drive growth in this product.
HWM is also a beneficiary of the supply chain issues in the global aerospace industry. As airlines continue to rely on older aircraft, the need for their maintenance increases. This helps Howmet improve its aftermarket segment’s revenues. The company also raised its dividend by 25% last week. The only drawback is that the company is already at all-time highs, but why wouldn’t it be with such attractive growth prospects?
2. Lockheed Martin Corporation (NYSE:LMT)
As an aerospace and security company, Lockheed Martin Corporation designs, develops, maintains, and manufactures technological products, systems, and services. It operates in space, aeronautics, rotary and mission systems, and missiles & fire control segments. The company’s love affair with US government contracts continues despite the government change as the company bagged a $551 million US Navy contract just this week. The contract could be worth as much as $1.37 billion if some of the options included in the contract also materialize.
Another recent development that sets the company up for a great performance during Trump’s term is Europe’s willingness to increase its defense spending. Donald Trump already emphasizes that European countries need to contribute more, but a recent report by the Financial Times reported that EU leaders are set to discuss ways to deal with countries that are seemingly neutral but also Russia-friendly. This is an attempt to scale up Europe’s defense capabilities and LMT should be able to benefit from it as it generates over 10% of its revenue from the continent’s spending on its defense.
1. Northrop Grumman Corporation (NYSE:NOC)
Northrop Grumman Corporation is an American manufacturer providing solutions in the fields of defense and commercial aerospace, electronics, and information technology (IT). Serving not only as a supplier to Boeing’s military aircraft programs, the giant is also known for making non-nuclear ships for the U.S. Navy. Analysts expect the company to follow a sustained growth path due to a surge in military spending, particularly from the U.S. Department of Defense.
Donald Trump in his inaugural speech stated to achieve “Peace through Strength”, implying expanding the military to ensure peace. With almost 86% of revenue generated from the U.S. Department of Defense, this promise could be fruitful for the company. Even if global conflicts subside during Trump’s term, increased defense spending in the US and EU should favor the company’s growth.
But that’s not all. International expansion continues to secure the company’s dominant position. NOC maintains a strong outlook for global demand in 2025, expecting a double-digit foreign revenue growth that surpasses the US growth rate. The Space System (SS) segment, in particular, is anticipated to witness growth throughout the year, with major restructuring facilitating both Aeronautics Systems (AS) and Defense Systems (DS).
Northrop Grumman Corporation is not on our latest list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 48 hedge fund portfolios held NOC at the end of the third quarter which was 49 in the previous quarter. While we acknowledge the potential of NOC as a leading AI investment, our conviction lies in the belief that some 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 as promising as NOC but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.
