Many investors have been piling into defense stocks in the first half of 2025. The last four years have brought escalating geopolitical tensions, including Russia’s war with Ukraine, Israel fighting a two-front war in Gaza and Iran.
There is also ongoing concern about China’s intentions regarding Taiwan and what that would mean for the United States.
While military conflicts are not new, the unprecedented scale and scope of global defense spending commitments strengthen the bullish case for defense stocks today. According to SIPRI (Stockholm International Peace Research Institute), global military spending increased to $2.4 trillion in 2024. In 2025, European countries increased defense budgets at the fastest pace since the 1950s.
However, the leader is still the United States. The annual Department of Defense budget is proposed to rise about 4% for FY2025, reaching $849 billion. But when combined with supplemental spending measures and projected increases into FY2026, defense funding could approach $1 trillion per year.
Furthermore, these are multi-year commitments that include significant funds for modernizing the defense industry, including space, cybersecurity, and unmanned systems.
Some investors are choosing to look at low-priced stocks with upside. Risk-averse investors may want to consider some large-cap defense and aerospace stocks offering growth and income opportunities.
Lockheed Martin: The Sector Leader Offers Great Value
Lockheed Martin Corp. (NYSE: LMT) is the world’s largest defense contractor, but that’s not the only reason it makes this list. In fact, LMT stock is down about 5% this year after the company announced $2 billion in classified program losses and a delay in its F-35 fighter program.
The company’s core programs include missile defense systems, space systems, and hypersonic weapons. The company has also made significant investments in AI-enabled mission systems, autonomous helicopters, and satellite networks. That means Lockheed Martin is well-positioned for the future of defense.
But does that mean the stock is a good buy right now? At 17x forward earnings, LMT stock is trading at a discount to its historical average. Analysts are also projecting earnings growth of around 9.3% in the next 12 months.
That coincides with the consensus price of $541.80, which offers about 17% upside. The dividend yield is 2.87%, which has increased for 22 consecutive years and will likely rise again in 2025.
General Dynamics Has Already Scored Big Wins
General Dynamics (NYSE: GD) is a defense jack-of-all-trades. The company’s revenue streams include combat vehicles (notably the Abrams tank), nuclear submarines, and IT and cybersecurity services.
General Dynamics reaches across all areas of the defense sector. That reach has been on display in several notable contracts:
- A $1.85 billion contract modification for Virginia-class Block VI submarines
- A $150 million contract from the U.S. Department of Defense for the Abrams Engineering Program
- A $580 million task order to maintain force protection systems for U.S. Army bases worldwide, ensuring the security of military installations
- A $57.8 million contract for submarine valves
The common theme of these contracts is the U.S. military's intention to upgrade its defense infrastructure.
GD stock is trading slightly above its consensus target, and at around 19x forward earnings, it's valued fairly compared to its historical averages. Analysts are projecting earnings growth of over 15% in the next 12 months. This comes at a time when the company is showing increased margin expansion, particularly in its aerospace segment.
L3Harris Technologies May Have a Golden Catalyst
L3Harris Technologies (NYSE: LHX) stock is up more than 19% in 2025. At around $252 per share, some analysts believe that the stock is due for a pullback. The one-month price chart for LHX stock shows early signs of consolidation, but the company may surprise investors to the upside.
That’s because the U.S. military plans to build a “Golden Dome” defense system. There is no money specifically earmarked for the project in the current spending bill going through Congress. However, analysts estimate that over $1 billion in related programs could ultimately support a “Golden Dome”-style homeland defense initiative.
This spending would be in areas such as secure communications, sensor fusion, and electronic warfare, all of which would benefit L3Harris.
Analysts are only forecasting about 2.5% upside for LHX stock after its run-up in 2025. However, Citigroup Inc. (NYSE: C) boosted its price target from $245 to $280 in June. Plus, at 22x forward earnings, LHX stock is trading at a moderate discount to its historical value.
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The article "3 Defense Leaders Set to Gain From Rising Military Spend" first appeared on MarketBeat.
