The fiscal 2024 National Defense Authorization Act calls for $886.3 billion in U.S. military spending, up 3.3% from 2023. The ongoing war in Ukraine, tensions between China and Taiwan, and escalating conflicts between Israel, Iran and Hamas in the Middle East may force the U.S. government to increase defense industry investment in the coming years, which could serve as a tailwind for the defense industry. 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, according to Morgan Stanley:
| Stock | Expected Change in Share Value* |
| TransDigm Group Inc. (ticker: TDG) | 7.4% |
| Northrop Grumman Corp. (NOC) | 25.2% |
| L3Harris Technologies Inc. (LHX) | 33.9% |
| Howmet Aerospace Inc. (HWM) | 10.4% |
| Textron Inc. (TXT) | -3.5% |
| Curtiss-Wright Corp. (CW) | 3.9% |
| CAE Inc. (CAE) | 33.1% |
| Embraer SA (ERJ) | 68.1% |
*From April 19 closing price, based on 12- to 18-month price targets.
TransDigm Group Inc. (TDG)
TransDigm designs and manufactures original aircraft parts sold to manufacturers. The company also produces aftermarket replacement parts sold to commercial and military aircraft operators. In November, TransDigm announced a $1.4 billion acquisition of the components and subsystems business of Communications & Power Industries. In February 2024, the company guided for 16.4% revenue growth and 24% net income growth this fiscal year. Analyst Kristine Liwag says TransDigm is her top aerospace stock pick, and she is positive on all of the company’s primary end markets in 2024. Morgan Stanley has an “overweight” rating and $1,275 price target for TDG stock, which closed at $1,187.70 on April 19.
Northrop Grumman Corp. (NOC)
Northrop Grumman is one of the world’s largest weapons and military technology producers. Liwag says Northrop is her top stock pick in the defense industry. While the stock currently trades at a steep valuation premium to other defense stocks, she says the company’s unique portfolio position, growth outlook and earnings visibility warrant a premium valuation. In addition, Liwag prefers defense stocks like Northrop that have capital deployment flexibility and self-help potential. She says Northrop has also historically maintained impressive discipline when bidding for government contracts. Morgan Stanley has an “overweight” rating and $579 price target for NOC stock, which closed at $462.58 on April 19.
L3Harris Technologies Inc. (LHX)
L3Harris Technologies is an aerospace and defense company focused on technology-driven mission solutions. L3Harris completed a $4.7 billion acquisition of propulsion systems and energetics company Aerojet Rocketdyne in 2023. Liwag says L3Harris has already realized $50 million in cost synergies following the Aerojet Rocketdyne acquisition and could report another $20 million to $30 million in additional cost savings in the near future. She says L3Harris is now focusing on deleveraging its balance sheet, which ballooned to $13.1 billion in debt at the end of 2023. Morgan Stanley has an “overweight” rating and $275 price target for LHX stock, which closed at $205.45 on April 19.
Howmet Aerospace Inc. (HWM)
Howmet Aerospace manufactures lightweight metal products, specializing in jet engine components, titanium structural parts, aerospace fastening systems and forged wheels. The company also provides defense solutions to its military partners, such as precision machining, integrated program management and metals expertise. Liwag says Howmet offers investors a compelling combination of a quality business and attractive growth. She says the company is well positioned for a cyclical ramp up in new aircraft builds, and demand for Howmet’s core products gives the company enviable pricing leverage as it reprices long-term agreements. Morgan Stanley has an “overweight” rating and $70 price target for HWM stock, which closed at $63.41 on April 19.
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Textron Inc. (TXT)
Textron is an aerospace and industrial conglomerate that manufactures Bell helicopters, Cessna aircraft, and other military and industrial equipment. In the most recent quarter, Textron reported $1.52 billion in revenue from its aviation segment, $961 million in revenue from its industrial segment and $1.07 billion in revenue from its Bell segment. Liwag says Textron has a strong balance sheet and generates stable free cash flow. She says the company’s electric vertical take-off and landing (eVTOL) aircraft business is worth about $2 per share. Morgan Stanley has an “overweight” rating and $90 price target for TXT stock, which closed at $93.30 on April 19.
Curtiss-Wright Corp. (CW)
Curtiss-Wright provides specialized solutions, engineered products and other services primarily to the aerospace and defense markets. The company’s defense electronics segment includes products such as commercial off-the-shelf embedded computing board-level modules, integrated subsystems, and data acquisition and flight test instrumentation equipment. Liwag says Curtiss-Wright has delivered on its ambitious “pivot to growth” plan. Looking ahead, she says the company’s upcoming investor day event in May will help set expectations for whether the company can build off its recent growth uptick in 2024 and beyond. Morgan Stanley has an “overweight” rating and $260 price target for CW stock, which closed at $250.24 on April 19.
CAE Inc. (CAE)
CAE provides digital immersion and training services for the defense and security, civil aviation and health care markets. The company’s defense and security segment includes training centers and services, as well as naval, air and land simulation products. Liwag says CAE’s defense business faces ongoing margin headwinds, but she is bullish on the outlook for its civil aviation business. Legacy contracts are weighing on defense profitability, but the company has guided for civil aviation adjusted operating income growth in the high teens percentage range in fiscal 2024. Morgan Stanley has an “overweight” rating and 34 Canadian dollar ($24.80) price target for CAE stock, which closed at $18.63 on April 19.
Embraer SA (ERJ)
Brazil-based Embraer is one of the world’s top regional commercial aircraft manufacturers. The company also makes private planes and military aircraft, including the Tucano single-engine pilot training and light attack aircraft. Liwag says the stock’s past underperformance may keep some investors skeptical, but Embraer may have a chance to break into the long-standing commercial transport passenger jet manufacturing duopoly of Boeing Co. (BA) and Airbus SE (OTC: EADSF). If Embraer can deliver a true challenger to the Boeing 737 MAX, the stock could see tremendous long-term upside. Morgan Stanley has an “overweight” rating and $40 price target for ERJ stock, which closed at $23.79 on April 19.
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8 Best Defense Stocks to Buy Now originally appeared on usnews.com
Update 04/22/24: This story was previously published at an earlier date and has been updated with new information.
