The best defense stocks have long-term programs as well as footholds in key emerging priorities for the Pentagon and U.S. allies around the world.
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As of December 2021, here are the best defense stocks with large market caps and high volumes, based on IBD’s ratings system:
Boeing Stock
Boeing (BA) is known for its commercial jets, but its defense and space programs accounted for $6.6 billion in the third quarter. In 2020, defense revenue accounted for $26.25 billion, up 1% from its 2019 total. The aerospace giant has a market cap of $123 billion.
Boeing has legacy fleets of fighter aircraft like the F/A-18 and F-15, which remain in production and have updates in the works. The Air Force is buying upgraded versions of the F-15 as well. In July 2020, Boeing received the first order in what could be a $23 billion contract to build F-15EX fighters.
Boeing is also building the T-7 Red Hawk trainer jet for the Air Force, the MQ-25 Stingray aerial-refueling drone for the Navy, and the KC-46 refueling tanker for the Air Force. Its P-8 Poseidon maritime surveillance aircraft for the U.S. Navy has also proved popular among allied navies too.
Meanwhile, the company is investing heavily in space and is building the Crew Space Transportation-100 Starliner to ferry astronauts to the International Space Station as well as the massive Space Launch System, which will be the most powerful rocket ever. But both projects have suffered major delays.
By contrast, rival SpaceX has already sent up a successful crewed test flight and multiple operational crewed flights to the ISS.
Investors should be cautious of its CAN SLIM metrics. Boeing stock has a weak IBD Composite Rating of 29 and an EPS Rating of 53.
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Northrop Grumman Stock
Northrop Grumman’s (NOC) revenue was $8.72 billion in Q3 and $36.8 billion in 2020. Its market cap is $57 billion.
Shares are consolidating with a 408.13 entry point, according to MarketSmith chart analysis. The stock has a Composite Rating of 70 and an EPS rating of 78.
The defense company is a major subcontractor on Lockheed’s F-35 and produces drones such as the Global Hawk, while its purchase of Orbital ATK boosted its space offerings.
Another big moneymaker will be the B-21 stealth bomber. The Air Force plans to buy 80 to 100 planes to replace Cold War-era Boeing B-52s.
The Pentagon hasn’t disclosed a comprehensive cost estimate, saying U.S. adversaries would be able to infer the B-21’s capabilities. But so far, the Air Force has put development costs at $23.5 billion, and analysts estimate the total acquisition price tag could hit $80 billion.
On July 30, CEO Kathy Warden said the B-21 is scheduled to enter low-rate production in 2022 after reaching key developmental milestones. The first prototypes are under construction.
Northrop also is the contractor for the Air Force’s Ground Based Strategic Deterrent (GBSD), which will replace aging intercontinental nuclear ballistic missiles. The total program is valued at $85 billion to $100 billion, marking another potential windfall for NOC stock.
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Lockheed Martin Stock
Lockheed Martin (LMT) is the biggest defense stock. Revenue was $$16.03 billion in Q3 and $65.4 billion in 2020, up 9.4% year-over-year. The company has a market cap of $94 billion. Shares carry a Composite Rating of 61 and an EPS score of 85.
The F-35 Joint Strike Fighter will be a key moneymaker for Lockheed for years to come. Its acquisition price tag is $400 billion, making it the most expensive Pentagon program ever. The stealth fighter is also seen as the “quarterback” in the Pentagon’s emerging warfighting strategy to counter near-peer rivals like Russia and China.
The U.S. and its allies have 3,100 F-35s on order through 2035, making Lockheed one of the best defense stocks for steady, long-term revenue. Currently, the fifth-generation jet accounts for about 25% of Lockheed’s total revenue. Management expects the program’s revenue will grow at a faster rate than the overall top line through the end of the decade.
And more allies want to buy the advanced jet. The United Arab Emirates is buying up to 50 F-35s, opening up the possibility of more sales in the region.
Lockheed also produces Sikorsky military and civilian helicopters, as well as a variety of missiles and fire control systems. Its Terminal High Altitude Area Defense missile-defense system has seen a surge in foreign orders.
Meanwhile, Lockheed has key hypersonic weapons contracts in the works. In September, the Defense Advanced Research Projects Agency said that Hypersonic Air-breathing Weapon Concepts (HAWC) from Lockheed and Raytheon successfully completed captive carry tests. But Lockheed’s hypersonic missile prototype failed to launch in April in what was supposed to be its first flight test with the Air Force.
Still, growth in hypersonic weapons is seen soaring. Lockheed sees hypersonic weapons sales hitting hitting $3 million by 2025. That’s up from an estimated $1 billion in 2020 and $600 million in 2019.
In space, Lockheed has secured major satellite deals and is developing the deep-space Orion spacecraft for NASA. Its joint venture with Boeing, United Launch Alliance, provides launch services for the Pentagon.
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Raytheon Technologies Stock
Raytheon and United Technologies completed their $100 billion all-stock merger in early April 2020 to become Raytheon Technologies (RTX). The new company has a market cap of $128 billion after spinning off the Carrier and Otis businesses. The company reported Q3 sales of $16.2 billion.
Raytheon stock has a Composite Rating of 61 and an EPS score of 72. Shares are forming a flat base with a 92.42 entry point.
Missile-defense systems are in high demand, making Raytheon one of the best defense stocks as threats from China, Russia, North Korea and Iran become larger priorities for the U.S. and its allies.
Raytheon builds the Patriot missile defense system along with the interceptors for the Aegis air defense system.
The company also produces an array of missiles and munitions, perhaps most notably the Tomahawk cruise missile. Raytheon is a leader in radar systems and electronic warfare. It is also ramping up its cyberdefense capabilities and expanding its hypersonic technology.
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General Dynamics Stock
General Dynamics’ (GD) revenue was $9.6 billion in Q3 and $38 billion in 2020. Its market cap is $56 billion. GD stock has a Composite Rating of 66 and an EPS Rating of 67.
GD stock is forming a flat base with a 210.31 buy point.
The company is one of the top shipbuilding defense stocks. It’s part of a team that’s building Littoral Combat Ships, and its Electric Boat unit makes the Virginia-class and Columbia-class submarines.
In November 2020, the Navy awarded GD a $9.5 billion contract to build the first Columbia-class sub and start advance work on the second sub.
GD’s Bath Iron Works also builds Arleigh Burke-class destroyers and Zumwalt-class next-generation destroyers. The NASSCO unit also builds auxiliary and support ships for the Navy, plus oil tankers and dry cargo carriers for commercial operators.
General Dynamics is a top provider of land weapons systems too, building Abrams tanks, the Stryker family of vehicles, and Light Armored Vehicles.
The company’s Gulfstream business jets lead the aerospace segment, which includes a business aviation services division.
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