The fiscal 2025 National Defense Authorization Act calls for $923.3 billion in U.S. military spending, up 4.1% from 2024 levels. However, the ongoing war in Ukraine, tensions between China and Taiwan, and conflicts between Israel, Iran, Hamas and Hezbollah in the Middle East may force the U.S. government to increase defense industry investment in coming years, which could serve as a tailwind for defense sector earnings.
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Defense stocks are attractive investments because they often have predictable, long-term government contracts. Here are seven defense stocks to buy with big upside potential, according to Morgan Stanley:
| Stock | Upside potential* |
| General Dynamics Corp. (ticker: GD) | 17.7% |
| TransDigm Group Inc. (TDG) | 20.7% |
| Northrop Grumman Corp. (NOC) | 19.3% |
| Howmet Aerospace Inc. (HWM) | 14.9% |
| Curtiss-Wright Corp. (CW) | -4.2% |
| Embraer SA (ERJ) | 20.4% |
| Joby Aviation Inc. (JOBY) | 105.3% |
*As of Nov. 1 market close.
General Dynamics Corp. (GD)
General Dynamics is a diversified aerospace and defense company that produces a wide range of products, including Gulfstream jets, Abrams tanks and nuclear submarines. In 2023, 72% of the company’s revenue came from the U.S. government, according to Statista. Analyst Kristine Liwag says the ramp-up of the Gulfstream G700 model is encouraging, and the backdrop for General Dynamics’ defense business is favorable. Liwag says the company is approaching easy G700 comparisons and has an attractive balance sheet and significant capital return potential. Morgan Stanley has an “overweight” rating and $345 price target for GD stock, which closed at $292.99 on Nov. 1.
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 the past year, TransDigm has announced several significant buyouts, including acquiring SEI Industries, Raptor Scientific, and the components and subsystems business of Communications & Power Industries. In August, the company guided for 20% revenue growth and 27.4% net income growth this year. Liwag says TransDigm has consistently reported impressive growth and margins upside, a testament to the company’s top-tier management team. Morgan Stanley has an “overweight” rating and $1,575 price target for TDG stock, which closed at $1,304.50 on Nov. 1.
Northrop Grumman Corp. (NOC)
Northrop Grumman is one of the world’s largest weapons and military technology producers. Liwag says direct commercial sales opportunities are driving significant margin expansion in Northrop’s Defense Systems segment. She says accelerating international sales growth is improving Northrop’s sales mix. In addition, Liwag says a stabilizing supply chain, improving operational efficiency and favorable macroeconomic conditions should help Northrop improve margins further over time. She says the company is also well positioned to capitalize on nuclear modernization, autonomy and other top Defense Department investment priorities. Morgan Stanley has an “overweight” rating and $605 price target for NOC stock, which closed at $506.95 on Nov. 1.
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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 has an impressive management team and offers investors an attractive combination of growth and value. She says Howmet’s track record of on-time delivery and high quality is helping it gain market share from competitors, and Howmet has opportunities for further margin expansion. Morgan Stanley has an “overweight” rating and $115 price target for HWM stock, which closed at $100.03 on Nov. 1.
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 is an attractive play on the emerging nuclear energy renaissance. She says the company has attractive end markets and has demonstrated impressive execution. Liwag is bullish on Curtiss-Wright’s restructuring efforts, which she says demonstrate its commitment to streamlining operations and focusing on future growth. Morgan Stanley has an “overweight” rating and $334 price target for CW stock, which closed at $348.82 on Nov. 1.
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 Embraer is her top stock pick in the aerospace industry. After several years of investments, Liwag says Ebraer is now generating strong growth and impressive numbers across all its segments. She says the company is still in the early stages of its “harvest period,” and its full-year financial guidance is conservative. Morgan Stanley has an “overweight” rating and $40 price target for ERJ stock, which closed at $33.21 on Nov. 1.
Joby Aviation Inc. (JOBY)
Joby Aviation is a California-based company developing electric vertical take-off and landing (eVTOL) aircraft. The company has a $131 million contract with the Department of Defense. In September 2023, Joby delivered its first aircraft to Edwards Air Force Base. It plans to deliver another aircraft to Edwards by the end of the year and two additional aircraft to MacDill Air Force Base in 2025. Liwag says Joby is making progress toward aircraft certification and is on track to launch a commercial service in 2025. Morgan Stanley has an “overweight” rating and $10 price target for JOBY stock, which closed at $4.87 on Nov. 1.
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7 Best Defense Stocks to Buy Now originally appeared on usnews.com
Update 11/04/24: This story was previously published at an earlier date and has been updated with new information.
