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 and Iran, Hamas and Hezbollah may force the U.S. government to increase defense industry investment in the 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 upside potential, according to Morgan Stanley:
| Stock | Upside Potential* |
| General Dynamics Corp. (ticker: GD) | 24.8% |
| Northrop Grumman Corp. (NOC) | 24.8% |
| TransDigm Group Inc. (TDG) | 24.9% |
| Howmet Aerospace Inc. (HWM) | 6.2% |
| Curtiss-Wright Corp. (CW) | 7.2% |
| Embraer SA (ERJ) | 18.4% |
| Joby Aviation Inc. (JOBY) | 23.3% |
*As of Dec. 2 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. Analyst Kristine Liwag says General Dynamics missed its target for Gulfstream G700 deliveries in the third quarter, but she is bullish on the company’s outlook thanks to its healthy balance sheet, the supportive defense industry backdrop and her positive outlook for Gulfstream demand. Morgan Stanley has an “overweight” rating and $345 price target for GD stock, which closed at $276.44 on Dec. 2.
Northrop Grumman Corp. (NOC)
Northrop Grumman is one of the world’s largest weapons and military technology producers. Liwag says Northrop’s 2025 preliminary guidance suggests another solid year ahead, including 3% to 4% revenue growth and 24.5% free cash flow growth. That cash flow growth will be driven in part by a drop in capital expenditures following a prolonged investment period. Liwag says direct commercial sales opportunities are boosting international defense segment margins. In addition, Northop is highly exposed to key Department of Defense investment priorities, including autonomy and nuclear modernization. Morgan Stanley has an “overweight” rating and $605 price target for NOC stock, which closed at $484.75 on Dec. 2.
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 November, the company guided for 2025 revenue growth of 11.5% and net income growth of 13.3%. Liwag says negotiations with aircraft manufacturers, integration of recent acquisitions and additional capital deployment are potential bullish catalysts. Morgan Stanley has an “overweight” rating and $1,575 price target for TDG stock, which closed at $1,260.47 on Dec. 2.
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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 there are plenty of things for investors to like about Howmet, including an attractive balance sheet, consistent growth, strong cash flow generation and potential for additional capital returns. She says ongoing supply chain bottlenecks will support demand for Howmet’s core products and its pricing power. Morgan Stanley has an “overweight” rating and $125 price target for HWM stock, which closed at $117.69 on Dec. 2.
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 a top-tier aerospace and defense investment that has a track record of impressive execution and exposure to attractive end markets, including nuclear energy. In fact, Curtiss-Wright is working with several major small modular nuclear reactor developers, including Westinghouse, X-energy and TerraPower. Morgan Stanley has an “overweight” rating and $395 price target for CW stock, which closed at $368.35 on Dec. 2.
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’s recent third-quarter earnings report and investor day event reassured shareholders of the company’s ongoing momentum, prolonged revenue growth opportunities and impressive fundamental outlook. Key stock catalysts include additional orders for the E2 commercial jet and the C-390 Millennium military transport aircraft, as well as potential reinstatement of Embraer’s dividend. Morgan Stanley has an “overweight” rating and $45 price target for ERJ stock, which closed at $38 on Dec. 2.
Joby Aviation Inc. (JOBY)
Joby Aviation is a California-based company developing electric vertical take-off and landing 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 2024 and two aircraft to MacDill Air Force Base in 2025. Liwag says Joby is progressing toward a commercial launch in 2025, and a recent $500 million investment by Toyota Motor Corp. (TM) gives Joby a strong liquidity position. Morgan Stanley has an “overweight” rating and $10 price target for JOBY stock, which closed at $8.11 on Dec. 2.
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7 Best Defense Stocks to Buy Now originally appeared on usnews.com
Update 12/03/24: This story was previously published at an earlier date and has been updated with new information.
