The fiscal 2024 National Defense Authorization Act calls for $886.3 billion in U.S. defense spending, up 3.3% from 2023 levels. The war in Ukraine has already boosted spending among the U.S. and its allies, but the dynamics in the defense industry changed dramatically after Hamas attacked Israel on Oct. 7, leading to Israel’s subsequent war declaration.
Bank of America analyst Ronald Epstein says the war in the Middle East may force the U.S. government to increase defense industry investment, and some defense stocks have jumped since the conflict began. Defense stocks are attractive investments because they often have predictable, long-term government contracts.
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Here are eight defense stocks to buy with big upside potential, according to Bank of America:
| Stock | Implied upside from Oct. 13 closing price |
| Boeing Co. (ticker: BA) | 62.2% |
| Northrop Grumman Corp. (NOC) | 25.5% |
| General Dynamics Corp. (GD) | 25.5% |
| Palantir Technologies Inc. (PLTR) | 3.7% |
| Leidos Holdings Inc. (LDOS) | 26.5% |
| KBR Inc. (KBR) | 23.3% |
| CACI International Inc. (CACI) | 13.9% |
| BWX Technologies Inc. (BWXT) | 9.9% |
Boeing Co. (BA)
Boeing is one of the world’s two main suppliers of large commercial aircraft and is also one of the largest U.S. defense contractors. The company produces military aircraft, space systems, missile defense systems, satellites, space vehicles and battle management systems for the U.S. Department of Defense. Investors are optimistic the company has moved past its quality control issues, and Epstein says Boeing will benefit from the global commercial aerospace recovery. He expects aircraft deliveries will recover to pre-pandemic levels by the middle of the 2020s. Bank of America has a “buy” rating and $300 price target for BA stock, which closed at $184.91 on Oct. 13.
Northrop Grumman Corp. (NOC)
Northrop Grumman is one of the world’s largest weapons and military technology producers. Northrop shares reacted negatively to the company’s recent news that it notified the U.S. Air Force it is not bidding to be prime contractor for the Next Generation Air Dominance program, but Epstein says the company is managing risk by taking a disciplined approach to contract bids, and the stock sell-off is a buying opportunity. Epstein says Northrop has other opportunities in the pipeline, including the Collaborative Combat Aircraft program. Bank of America has a “buy” rating and $615 price target for NOC stock, which closed at $490.15 on Oct. 13.
General Dynamics Corp. (GD)
General Dynamics produces a range of vehicles and systems for the U.S. military. Epstein says strengthening demand for the company’s combat systems unit will help drive robust topline growth for General Dynamics. While lingering supply chain issues and new program starting costs may pressure earnings in the near term, Epstein says combat systems will drive earnings upside through the mid-2020s. He says General Dynamics is a solid defensive investment, and its impressive balance sheet and free cash flow generation position the company for acquisitions and capital return growth. Bank of America has a “buy” rating and $305 price target for GD stock, which closed at $243.04 on Oct. 13.
Palantir Technologies Inc. (PLTR)
Palantir Technologies is a leading artificial intelligence-powered data analytics software company. Palantir also builds advanced defense software solutions for the U.S. and other allied military forces. Analyst Mariana Perez Mora says Palantir’s combination of cutting-edge AI technology and differentiated, highly secure end-to-end software solutions will help the company continue to expand its presence within national security organizations, federal civilian agencies and corporations. In 2022, 56% of Palantir’s sales were to government customers, and Mora says Palantir’s government web services suite will increase that penetration. Bank of America has a “buy” rating and $18 price target for PLTR stock, which closed at $17.36 on Oct. 13.
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Leidos Holdings Inc. (LDOS)
Leidos provides technology services and solutions to the defense and intelligence industries and is highly exposed to U.S. government cybersecurity spending. The company’s Dynetics subsidiary provides advanced, mission-critical solutions. Mora says Leidos’ core portfolio of products gives the company broad exposure to U.S. government investment priorities, making it an attractive option for modernization efforts in the defense, civil and health sectors. Mora says the Dynetics ramp has been slower than expected, but the company has landed multiple contract wins in the DoD’s hypersonics programs. Bank of America has a “buy” rating and $120 price target for LDOS stock, which closed at $94.89 on Oct. 13.
KBR Inc. (KBR)
KBR provides science, engineering and technology solutions for government and commercial customers. The company is particularly well positioned to capitalize on DoD space and cybersecurity spending. Mora says KBR’s sustainable technology solutions segment has been a strong growth driver, and its hydrogen, ammonia, plastics recycling, olefins, lithium extraction, green refining solutions and sustainable modernization businesses are well positioned to benefit from green energy spending. Mora says the government solutions segment should get a boost from the ramp-up of the Homesafe project in mid-2024. Bank of America has a “buy” rating and $75 price target for KBR stock, which closed at $60.81 on Oct. 13.
CACI International Inc. (CACI)
CACI provides software services for the U.S. government and is another great way for investors to gain exposure to DoD space and cybersecurity spending. Mora says CACI’s capital deployment strategy, including opportunistic share buybacks, will support the stock. She says CACI will benefit from the DoD and other national security agencies’ increased focus on cybersecurity. In the longer term, Mora says CACI has tremendous growth potential, and its recent government contract wins coupled with its well-balanced portfolio of products make it an attractive investment. Bank of America has a “buy” rating and $385 price target for CACI stock, which closed at $338.11 on Oct. 13.
BWX Technologies Inc. (BWXT)
BWX Technologies supplies U.S. submarines and carriers with nuclear reactors, fuel and associated services. Epstein says BWX is the best way for investors to potentially profit from steady U.S. Navy growth and the emerging nuclear energy and nuclear medicine markets. Epstein says BWX is the leader in the small modular reactor market and is under government contract to develop a spacecraft that uses nuclear thermal propulsion technology. He anticipates bipartisan support for an increase in naval spending amid mounting tensions with China. Bank of America has a “buy” rating and $85 price target for BWTX stock, which closed at $77.36 on Oct. 13.
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8 Best Defense Stocks to Buy Now originally appeared on usnews.com
Update 10/16/23: This story was previously published at an earlier date and has been updated with new information.
