This article looks at the 8 best small cap defense stocks to buy now. We also dive deep into the impact of ongoing regional military conflicts on the defense industry.
The world has been rocked with conflict over the last few years. On November 19, Ukraine marked 1,000 days since Russia invaded the country, with no immediate end to the war in sight. Armenia and Azerbaijan continue to engage in sporadic exchange of fire across the border, after the former lost control of the Nagorno-Karabakh region to Azeri troops in 2020.
The Middle East is going through its worst crisis since the Arab-Israeli War in 1973, with Israel invading Gaza and then Lebanon in continuation of its response to the October 2023 Hamas-led attack on the country.
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While the human impact of the wars has been tragic, the defense industry has profited by luring investors into piling up their stocks. After Iran launched projectiles toward Tel Aviv and Israeli military bases on October 1, several of the world’s top defense contractors saw their shares book an all-time high. As of November 19, an Aerospace & Defense ETF issued by iShares has gained 19.26% year-to-date, outperforming the broader market by over two percentage points.
However, defense shares in the third week of November following the announcement of the Department of Government Efficiency (DOGE) by President-elect Donald Trump. The Republican-winning candidate nominated Elon Musk and Vivek Ramaswamy to co-lead the department, which will work outside the federal stream and aims to improve governance by reducing wasteful spending, cutting unnecessary regulations, and restructuring federal agencies.
In a note published on election day, analysts at Jefferies argued that a renewed focus under the Trump administration to force allies into paying their share can hurt defense sentiment. During his first term in office, the 78-year-old threatened to withdraw from NATO if other member countries didn’t increase their military spending. You can read about the disparities in spending in our 2023 article, NATO Military Spending by Country: Top 20 Countries.
Trump has also vowed to end the tumultuous wars in Ukraine and the Middle East. While talking to Quartz on November 4, Russell Hackmann, president at Hackmann Wealth Partners, stated the following:
Trump is more anti-war and therefore that is worse for the defense stocks.
In contrast, other experts see long-term growth potential in the defense sector under Trump’s second stint. He is credited for leaving a mark on the U.S. military during his first term, which saw defense spending reaching record highs and the establishment of the United States Space Force (USSF). Over the past year or so, Trump has regularly made mention of wanting to build ‘a great Iron Dome missile defense shield over our entire country.’
With that said, let’s now head over and look at the best small cap defense stocks to buy now.
A technician in a white coat testing an in-car system on a modern military vehicle.
Methodology
We used stock screeners to identify companies in the aerospace and defense industry with a market cap of between $300 million and $2 billion, as of November 19, 2024. Then we picked the top 8 stocks that had the highest number of hedge funds having stakes in them. We ranked them in ascending order of hedge fund holders in each company. Data on hedge funds was sourced from Insider Monkey’s database of 900 hedge funds for the third quarter of 2024. We have also included firearm companies in our analysis as they are considered a part of the broader defense industry.
Why are we interested in 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).
8 Best Small Cap Defense Stocks to Buy Now:
8. Redwire Corporation (NYSE:RDW)
Market Cap: $767 million
Number of Hedge Fund Holders: 7
Redwire Corporation (NYSE:RDW) is a global space infrastructure and innovation company, headquartered in Jacksonville, Florida. It provides core space infrastructure offerings to enable civil, commercial, and national security programs.
In June this year, the Defense Advanced Research Projects Agency (DARPA), which works under the Department of Defense (DOD), announced Redwire Corporation (NYSE:RDW) as the primary contractor and enabler of its Otter program, under which the company would leverage its leadership in very low-Earth orbit (VLEO) capabilities to develop an air-breathing satellite that uses novel electric propulsion systems.
The company announced financial results for the third quarter of 2024 on November 7. Revenue was posted at $68.6 million, growing 9.6% from last year. Year-to-date revenue, as of September 30, was 30.1% higher than in the corresponding period in 2023. The increase has been driven by a 47.5% growth in national security revenue and an 83.6% surge in commercial revenue. The company had a solid backlog during the quarter, with over 85% of the revenue derived from government-funded programs or global market customers.
During the quarter, Redwire Corporation (NYSE:RDW) acquired Harith Systems, a spacecraft development company that specializes in missions for national security space customers. The acquisition has broadened the company’s product technology portfolio with two additional spacecraft – Mako, which is under contract with the Space Force’s Tetra five program, and Thresher, which is designed to operate in contested environments and is under contract with an undisclosed customer.
After a strong Q3, Redwire Corporation (NYSE:RDW) reaffirmed its outlook for the remainder of the year. Revenue for the full year 2024 is forecast to be $310 million, representing a year-over-year increase of 27%. About 76% of the guidance had already been realized on a year-to-date basis at the end of the third quarter.
Redwire Corporation (NYSE:RDW) is one of the best defense stocks to buy now. Wall Street analysts have a consensus Strong Buy rating for the stock. Amongst hedge funds tracked by Insider Monkey, 7 held investments in the company, as of Q3 2024.
7. Ducommun Incorporated (NYSE:DCO)
Market Cap: $969 million
Number of Hedge Fund Holders: 13
Ducommun Incorporated (NYSE:DCO) is an American company that provides manufacturing solutions to customers in the global aerospace, defense, military, space, and industrial markets.
The company operates through two segments: Electronic Systems and Structural Systems. The Electronic Systems segment designs and manufactures high-reliability electronic and electromechanical products, while the Structural Systems segment builds contoured aerostructure components and assemblies.
In April this year, Ducommun Incorporated (NYSE:DCO) was awarded two major contracts worth over $50 million for the Raytheon SPY-6 family of radar systems. These include a $25 million follow-on order for one circuit card assembly already in production and a new $25 million order for another. Raytheon’s trust in Ducommun on this crucial Navy radar system demonstrated its significance in the defense industry. Later in June, Raytheon awarded the company a $12 million order for the TOW missile system.
On November 9, Ducommun Incorporated (NYSE:DCO) announced financial results for the third quarter of 2024. Revenue grew 2.6% year-over-year to cross the $200 million mark for the first time, driven by growth in commercial aerospace and military and space sectors. This was the fifth successive quarter with $190 million or above in quarterly revenue.
Ducommun Incorporated (NYSE:DCO) witnessed a 6% increase in military and space revenue from last year and attributed this to strong performances in its radar, electronic warfare, and missile programs. The company’s defense revenue has now been over $100 million in four out of the last five quarters. Northrop Grumman emerged as the second largest customer for Ducommun in Q3, as the company builds scale at defense giants outside of RTX.
Ducommun Incorporated (NYSE:DCO) is one of the best defense stocks to buy now. Wall Street analysts have a consensus Strong Buy rating for the stock and forecast an average share price upside potential of 12%. According to Insider Monkey’s database, 13 hedge funds held a stake in the company, as of Q3 2024.
6. Smith & Wesson Brands, Inc. (NASDAQ:SWBI)
Market Cap: $589 million
Number of Hedge Fund Holders: 15
Smith & Wesson Brands, Inc. (NASDAQ:SWBI) is a firearm manufacturing company headquartered in Maryville, Tennessee. It is one of the leading makers of long guns, handguns, rifles, and other shooting equipment. The company has been operating since 1852 and sells its products to various customers, including competitive shooters, firearm enthusiasts, security agencies, individuals desiring personal protection, sportsmen, and hunters.
In its recent Q1 2025 Earnings Call on September 5, Smith & Wesson Brands, Inc. (NASDAQ:SWBI) reported net sales for the quarter at $88.3 million, down 22.7% year-over-year, driven by softer firearms demand amid broader inflationary pressures on consumer spending. The gross margin of 27.4% was 0.8% higher compared to the same period last year. This was primarily attributed to increased absorption on higher production, a price increase that went into effect in January, and lower inventory reserve adjustments and relocation costs. The company also saw an increase in interest expense during the quarter, which coupled with the lower revenue, resulted in a net loss of $2.1 million.
Despite a challenging quarter, Smith & Wesson Brands, Inc. (NASDAQ:SWBI) has maintained its outlook for the fiscal year. It has been encouraged by the successful launch of new products and saw positive momentum in demand toward the end of Q1. The company expects sales to grow significantly during the second fiscal quarter as it enters the busy fall season. Sales growth is anticipated to be 5% to 10% higher year-over-year, which will also further improve gross margin.
From a balance sheet perspective, Smith & Wesson Brands, Inc. (NASDAQ:SWBI) accelerated share repurchases during the quarter and bought back nearly 871,000 shares worth $13 million. It also paid $5.9 million in dividends and ended Q1 FY2025 with $35.5 million in cash and $70 million in line of credit borrowings.
The sentiment around the stock is generally bullish. Wall Street analysts have a consensus Strong Buy rating for SWBI, with a share price upside potential of 38%. According to Insider Monkey’s database for Q3 2024, 15 hedge funds held a stake in the company. Smith & Wesson Brands, Inc. (NASDAQ:SWBI) is among the best defense stocks to buy now.
5. Sturm, Ruger & Company, Inc. (NYSE:RGR)
Market Cap: $641 million
Number of Hedge Fund Holders: 15
Sturm, Ruger & Company, Inc. (NYSE:RGR) is an American firearms company that has a diverse portfolio of products, mainly serving three product lines – pistols, rifles, and revolvers. It is among the largest firearm manufacturers in the United States. The company primarily sells its products to domestic customers but also sells weapons to law enforcement agencies.
The firearms maker announced financial results for the third quarter of 2024 on October 30. Net sales for the quarter stood at $122.3 million, growing 1.16% year-over-year. Net sales for the nine months ended September 28 were at $389.9 million, compared to $413.2 million in the corresponding period in 2023. Diluted earnings per share in Q3 were logged at $0.28 per share. Diluted earnings per share for the nine months ended this year were at $1.15, down from $2.13 last year.
Despite a dip in sales this year, Sturm, Ruger & Company, Inc. (NYSE:RGR) has showcased resilience in a challenging market impacted by rising fixed costs and a competitive promotional environment. It continues to maintain a robust financial position with no debt. The company ended the quarter with $96 million in cash and short-term investments.
Sturm, Ruger & Company, Inc. (NYSE:RGR) returned $39.3 million to shareholders during the first nine months of 2024 through quarterly dividends and share repurchases. The Board of Directors has also declared a $0.11 per share quarterly dividend, payable on November 27.
The company is encouraged by the market showing signs of recovery. Its new products have also performed well this year, generating 31% of all firearm sales during the first nine months of 2024. Hedge fund sentiment toward the stock has improved as well. Amongst hedge funds tracked by Insider Monkey, 15 held investments in the company as of Q3 2024, up from 14 at the end of the second quarter. Sturm, Ruger & Company, Inc. (NYSE:RGR) is one of the best small cap defense stocks to buy now.
4. National Presto Industries, Inc. (NYSE:NPK)
Market Cap: $536 million
Number of Hedge Fund Holders: 16
National Presto Industries, Inc. (NYSE:NPK) is divided into three business segments – houseware appliances, defense, and safety. This provides the company with a significant edge; if one market is down, the other may go up. NPK was founded in 1905 and started off producing pressure canners for home use, before venturing into other cooking appliances and, later, defense and safety products.
Its defense segment is a major supplier of 40mm ammunition and cartridge cases to the United States Department of Defense (DoD). On May 14, National Presto Industries, Inc. (NYSE:NPK) was awarded a five-year contract worth $818.9 million by the U.S. Army for 40mm M918E2 High-Velocity Target Practice cartridges. Earlier in the month, the company also announced that Spectra Technologies, LLC, a wholly-owned subsidiary of National Defense Corporation (NPK’s defense holding company) received a follow-on subcontract valued at $48 million from Raytheon Missiles & Defense to produce warheads for the TOW 2B missile.
On October 25, National Presto Industries, Inc. (NYSE:NPK) announced financial results for the third quarter of 2024. Net sales were posted at $91.8 million, up 10.4% year-over-year, and were driven by an 8.9% increase in defense segment shipments from backlog and a 15.2% surge in home appliances revenue. Net income stood at $8.08 million, compared to $7.02 million during the same period last year. Net EPS was logged at $1.13, growing 14% from last year.
According to Insider Monkey’s database for Q3 2024, 16 hedge funds had investments in the company, making it one of the best small cap defense stocks to buy now.
3. V2X, Inc. (NYSE:VVX)
Market Cap: $1.88 billion
Number of Hedge Fund Holders: 21
V2X, Inc. (NYSE:VVX) is a leading provider of critical mission solutions and support services to defense clients in over 50 countries and territories.
The company’s market position has been bolstered with several recent contract awards, with a combined value of approximately $5 billion. In August, V2X, Inc. announced receiving a $747 million contract for maintenance of the F-5 aircraft, which plays a crucial role in training naval pilots through simulation capabilities and adversary combat tactics. Work on the project will boost Naval readiness and enhance the sustainability of these critical aerial assets.
During the same month, it secured a $3.7 billion Warfighter-Training Readiness Solutions (W-TRS) task order to provide readiness capabilities to every soldier and unit in the U.S. Army worldwide. It is a five-year contract. Earlier in the year, V2X, Inc. (NYSE:VVX) was awarded another five-year aviation support and training contract, valued at $400 million, by the Saudi Arabian Ministry of National Guard.
These contracts have strengthened the company’s revenue stream and also demonstrated its ability to secure long-term, high-value defense deals. As a result, Wall Street analysts are bullish on the stock with a consensus Buy rating, along with an average share price upside potential of over 15%.
V2X, Inc. (NYSE:VVX)’s financial performance also remained robust. In its recent Q3 2024 earnings call, the company reported a revenue of $1.08 billion, growing 8% from last year. The strong performance during the quarter was driven by a 31% increase in revenue in the Indo-Pacific and a 13% revenue growth in the Middle East – both year-over-year.
Adjusted EBITDA was posted at $82.7 million, up 28% from the prior year due to robust growth and improved productivity during the quarter. Diluted EPS was logged at $0.47, beating expectations of $0.35 per share. Adjusted diluted EPS was $1.29, up 77% from the same period last year.
Hedge fund sentiment around V2X, Inc. (NYSE:VVX) has improved as well. According to Insider Monkey’s database for Q3 2024, 21 hedge funds held stakes in the company, up from 16 at the end of Q2. It is one of the best defense stocks to buy now.
2. Astronics Corporation (NASDAQ:ATRO)
Market Cap: $585 million
Number of Hedge Fund Holders: 22
Astronics Corporation (NASDAQ:ATRO) is an American company that provides advanced technologies to clients in the global aerospace, defense, and electronics industries. Some of its offerings include lighting and safety systems, aircraft electronics integration, automated test systems, and distribution and motion systems, among other products and services.
In June, Astronics Corporation (NASDAQ:ATRO) secured a $215 million contract for the production of the U.S. Army Radio Test Set TS-4549/T. Under the agreement, the company would be responsible for program management, engineering, and manufacturing of the product to support the operational readiness of American troops’ radio communication devices.
The contract will run for five years and includes an initial delivery order of $15.5 million to cover qualification requirements. At the time of the agreement, Astronics Corporation (NASDAQ:ATRO) expected between $10 million and $12 million of revenue to be realized during the fiscal year 2024.
On November 6, the company announced financial results for the third quarter of 2024. Sales increased 25% year-over-year to $203.7 million, which is the highest quarterly revenue since Q1 2019. Adjusted EBITDA was posted at $27 million, which represented 13% of sales. This was a 207% improvement from the prior year and was led by a strong performance by the aerospace segment, whose sales grew 25% for the quarter and 19% for the year.
Net loss for the quarter was at $11.7 million, or 34 cents per diluted share, and included the impact of $7 million worth of refinancing costs. This was an improvement from the net loss of $17 million during the same period last year. Looking ahead, Astronics Corporation (NASDAQ:ATRO) is encouraged by strong demand and is entering the fourth quarter with a backlog of $612 million, which sets it up for continued improvements in financial results toward the end of the year and the beginning of 2025.
According to Insider Monkey’s database for Q3 2024, 22 hedge funds had investments in the company, up from 19 at the end of the second quarter. Astronics Corporation (NASDAQ:ATRO) is among the best small cap defense stocks to buy now.
1. Triumph Group, Inc. (NYSE:TGI)
Market Cap: $1.45 billion
Number of Hedge Fund Holders: 24
Triumph Group, Inc. (NYSE:TGI) is an American aerospace and defense company that designs, engineers, manufactures, repairs, and overhauls complex aerospace structures and systems for both the commercial and military markets.
Triumph Group, Inc. (NYSE:TGI) has been providing original equipment and Hydraulic Utility Actuation Valves (HUAV) for the F-35 fifth-generation fighter jets since 2014, and in August this year, it extended its sustainment agreement with Lockheed Martin to provide repair and technical support to ensure fleet readiness of one of the world’s most advance fighters.
In its latest Q2 2025 earnings call on November 12, Triumph Group, Inc. (NYSE:TGI) announced a military aftermarket revenue of $44 million, which remained flat compared to last year. CH-47 aftermarket sales grew 63% during the quarter but were offset by lower V-22 aftermarket sales. Military OEM revenue was posted at $64 million, growing $3 million compared to the prior year, with a significant volume increase in CH-47 and F/A-18 OEM sales.
Overall, consolidated revenue for the quarter stood at $287 million, with aftermarket revenue growing 13% year-over-year and contributing 60% of the company’s profit. Commercial aftermarket registered a 34% growth, driven by rising average fleet age. Adjusted operating income was posted at $36 million, up 44% from last year, while adjusted EBITDA increased 26% to a total of $43 million. Triumph Group, Inc. (NYSE:TGI)’s interior business also returned to profitability after deep cost cuts and a favorable commercial resolution with Boeing.
It ended the quarter with a backlog of $1.9 billion. This is 7% higher compared to last year and has been fueled by commercial and military platform growth. Triumph Group, Inc. (NYSE:TGI) is well-positioned to capitalize on the growing demand for advanced solutions as international travel increases and demand for military equipment remains robust amid ongoing regional conflicts.
Triumph Group, Inc. (NYSE:TGI) is one of the best defense stocks to buy now, with 24 hedge funds having a stake in the company, according to Insider Monkey’s database for Q3 2024.
Overall, TGI ranks first among the 8 Best Small Cap Defense Stocks to Buy Now. While we acknowledge the potential of defense companies, 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 TGI but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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