There is carnage in the US stock market as the major indices continue to shed points after last week’s aggressive selloff. The Dow was down over 2% with the S&P losing nearly 3% of its value. Nasdaq continued to be the worst of the three, down 4% by market close.
As tariffs continue to spook markets, we look at sectors that are either a safer bet amid the volatility, or provide near-term growth opportunities. In the Aerospace and Defense Industries, such an opportunity is currently presenting itself.
The US is signaling to the rest of the world that it needs to spend more on its own defense rather than relying on the US for military aid. This is making major economies of the world rethink their defense budget allocations.
Since most of the Western world buys its military equipment from the US, the money is eventually going to flow into US companies. This simple bullish thesis is what’s driving the industry and we believe it is time for investors to take positions in these stocks to benefit from this.
To come up with the list of 10 buy and forget Aerospace and Defense stocks for Trump’s Presidency, we only considered stocks with a market cap of at least $2 billion that are the best performers so far in 2025.
An aerial view of a commercial jetliner in flight, its airframe glinting in the sun.
10. Kratos Defense & Security Solutions, Inc. (NASDAQ:KTOS)
Kratos Defense & Security Solutions, Inc. is a technology company that serves national security, commercial, and defense markets. It operates in Unmanned Systems and Kratos Government Solutions segments. The stock is up 10% for the year despite an 18% correction from its February highs.
The company’s hypersonic missiles are exciting investors. These are unmanned missiles that are so new that there is very limited technology to intercept or counteract them. This has helped the company win a contract with the US defense forces for improving the country’s hypersonic missile capabilities, a necessity after Russia successfully used the technology in Ukraine.
The 5-year contract is important for multiple reasons. It is the largest in the company’s history, so the financial aspect will boost the stock’s performance. However, long-term investors have their eyes on another prize.
By collaborating with the government at the testing stage, KTOS is setting itself up to be a critical part of the United States’ hypersonic capabilities, something both China and Russia actively seek to neutralize to protect their own nuclear weapons.
This means the demand for these weapons isn’t going anywhere and if KTOS can cement its position and perfect the technology, the dollars will eventually flow and trickle down to the investors.
9. Northrop Grumman Corporation (NYSE:NOC)
Northrop Grumman Corporation is a defense and aerospace technology company. The company operates through Aeronautics Systems, Defense Systems, Mission Systems, and Space Systems segments.
NOC is expected to generate significant additional revenue from Europe’s increasing focus on defense spending. Donald Trump has already called out for Europe to get its act together and reduce its reliance on the US for defense. French President Emmanuel Macron has asked Europe to up its defense budget with some of the eastern European countries expected to significantly boost their spending.
NOC’s diverse customer base means it is protected from any negative impact on local defense spending while making full use of Europe’s increased spending in the wake of geopolitical issues.
The stock has a highest price target of $600 according to one analyst, with the median forecast at $547 according to ratings from 26 different analysts.
8. RTX Corporation (NYSE:RTX)
RTX Corporation serves both the commercial aerospace as well as the defense industry. It is usually in the news for its defensive and offensive threat dealing capabilities, but the more stable parts of the business, the Collins Aerospace and the Pratt & Whitney segment, are what make the stock attractive for long-term investors.
RTX’s impressive Q4 results meant that the company was able to register double digit sales growth across all its segments. This is particularly important because in the past, the company has struggled to compete with its peers in the Raytheon segment. The return to growth of this segment is good news for investors.
The company’s 2025 guidance came in below analyst expectations but the projected sales growth, together with $7.25 billion in free cash flow, should not worry investors much. With the company expecting margin improvement through the year, earnings could surprise to the upside by the end of the year.
7. Huntington Ingalls Industries, Inc. (NYSE:HII)
Huntington Ingalls Industries, Inc. is a builder, designer, and repairer of military ships. The company operates in Mission Technologies, Ingalls, and Newport News segments. The company’s stock is surging and is likely to continue going up this week.
The optimism comes from recent developments from the White House, with Donald Trump doubling down on efforts to boost the local shipbuilding industry, including through tax breaks. The move is aimed at strengthening the US military. The President went as far as saying that there will be a new office of shipbuilding in the White House, underscoring the urgency of the matter.
According to Citi analyst Jason Gursky, defense stocks like HII are a buy. These stocks have priced in a flat US defense revenue, which is unlikely to be the case now with Donald Trump’s focus on building the country’s defense. While the stock rises just like many other defense stocks, there is a chance that HII brings greater rewards thanks to its focus on shipbuilding.
6. HEICO Corporation (NYSE:HEI)
HEICO Corporation is a manufacturer, designer, and supplier of defense, aerospace, and electronic products and services. The company operates through Electronic Technologies Group (ETG) and Flight Support Group (FSG) segments. The stock is up over 11% this year.
HEICO’s bull thesis revolves around its two main segments ETG and FSG. The FSG segment brings in 66% of the total revenue. This part of the business provides aftermarket replacement parts which continue to be in demand thanks to the booming air travel industry.
HEICO offers aftermarket parts at a significant 30%-40% discount compared to competitors, so this part of the business is expected to capitalize on the booming air travel demand.
The other segment, ETG, makes components for defense, industrial, and aerospace applications. As nations continue to see defense as a critical piece of their existence, the company is set to reap the rewards, especially because contracts in this segment are usually long-term commitments that ensure a healthy cash flow and revenue.
With both these segments set to soar during Trump’s presidency, HEICO’s growth runway is as strong as it can get.
5. Howmet Aerospace Inc. (NYSE:HWM)
Howmet Aerospace, a global transportation and aerospace player, is 13.5% off its 52-week high hit just last month. The dip is an opportunity for investors who may have missed out on the last earnings rally.
The company reported a 40% YoY earnings surge, but the more impressive part of the report was the conversion rate. HWM converted 88% of its net income into free cash flow, closing in on the one billion dollar mark.
This amazing financial strength is also backed by near-term growth, with the company projecting over $8.03 billion in revenue and an EPS of $3.17. While growth in the overall business is anticipated, the Commercial aerospace spares segment is likely to grow much faster, accounting for 20% of the total revenue in 2025, up from the previous 17%.
The 18% projected bottom line growth is driving the stock price higher, and with concerns over the economy sparking a sell off, the dip is a buying opportunity if there ever was one!
4. GE Aerospace (NYSE:GE)
Like many other aerospace stocks, GE Aerospace is set to benefit from the rise in air travel demand as well as the increase in global defense spending. GE makes jet engines and commands the largest installed base of customers in the world.
Redburn Atlantic recently initiated coverage of the stock and assigned it a target price of $250, a 30% upside from current levels. The financial firm sees sustainable growth in the next decade with limited downside risk. GE Aerospace management is good at capital allocation which is why the company commands a premium valuation.
In 2025, the company expects a low double-digit revenue growth and a 15% earnings growth. Increasing orders from global customers isn’t something new for GE. However, with investment in the new MRO (Maintenance, Repair, and Overhaul) facility, growth in the aftermarket services segment can easily strengthen the company’s overall business.
Investors will be better off buying the company at an expensive price for its earnings and cash flows rather than waiting for a sell-off to start taking positions. Waiting for a dip could mean missing out on potential near-term returns as the world rushes to increase its defense spending.
3. VSE Corporation (NASDAQ:VSEC)
VSE Corporation offers a range of aftermarket products and services globally. It operates in Fleet and Aviation segments. The company is up over 22% this year and judging by its recent earnings and industry outlook, it has a lot of room to grow.
Just over a week ago, VSEC reported an earnings beat by a massive 25%! On revenue of $299 million, the firm generated $52 million in free cash flow and $55 million in operating cash flow.
The aviation segment is expected to drive the major chunk of growth in 2025, set to generate an additional 35%-40% in revenue this year. The segment margins are expected to stay at 16% at the midpoint after accounting for the dilution impact of both Kellstrom and TCI acquisitions.
With air traffic returning to pre-covid levels and expected to continue growing, VSEC is set to soar thanks to its small size, financial strength, and an amazing track record for shareholders.
2. Elbit Systems Ltd. (NASDAQ:ESLT)
Elbit Systems Ltd. is a developer and supplier of land, airborne, and naval products and systems. The company serves homeland security, defense, and commercial aviation applications. The stock is up over 38% year to date and for good reason.
ESLT’s backlog is now worth $22.1 billion, which should be enough to support a double-digit topline growth this year. Two-thirds of these orders are from outside Israel, which means the company is well-diversified to handle any reduction in defense spending at home.
Two recent deals that are driving the company’s stock price include a $276 million deal with the Israel Defense Ministry for the supply of heavy air munitions and an approximately $600 million deal with Greece for 40 PULS multiple rocket launchers.
If the company is able to consistently deliver on its backlog of orders, there is no reason why it won’t continue to receive more orders. Geopolitical tensions continue to spur defense spending and the company is well-placed to benefit from that. With the stock on a tear so far this year, what’s not to like about ESLT?
1. Embraer S.A. (NYSE:ERJ)
Embraer S.A. is a designer, manufacturer, developer, and seller of aircraft and systems. The company operates in Services & Support, Commercial Aviation, Executive Aviation, Defense & Security, and other segments.
Right at the beginning of Trump’s presidency, ERJ received a massive order for 182 executive jets from the US firm Flexjet. This is the largest order in the firm’s history and is what’s driving the recent rally.
Combine the above with over 200 aircraft for Netjets and the company has about 400 jets to deliver in the next 4 years, which should keep its finances in shape. For 2025, the aircraft maker plans to deliver 77-85 commercial aircraft and 145-155 business jets.
The CEO is aware that orders like the one from Flexjet don’t come around every year. However, the sales momentum is expected to stay strong in the near term.
Maybe we won’t hit the same sales levels because of that huge Flexjet contract, which is not something we see every year, but we expect a very good year in terms of sales.
ERJ is not on our latest list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 27 hedge fund portfolios held ERJ at the end of the fourth quarter, which was 25 in the previous quarter. While we acknowledge the potential of ERJ as a leading investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for an AI stock that is as promising as ERJ but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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