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, Hezbollah and Hamas may lead 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) | 32.1% |
| TransDigm Group Inc. (TDG) | 25.5% |
| Northrop Grumman Corp. (NOC) | 29.2% |
| Axon Enterprise Inc. (AXON) | 17.3% |
| Howmet Aerospace Inc. (HWM) | 12.8% |
| Curtiss-Wright Corp. (CW) | 12.4% |
| Embraer SA (ERJ) | 18.7% |
*As of Jan. 2 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. The majority of the company’s revenue comes from the U.S. government, particularly its large contracts with the Department of Defense. Analyst Kristine Liwag says Gulfstream G700 deliveries have fallen short of expectations, but these hiccups with the new aircraft program are fixable. Overall, Liwag says General Dynamics has a healthy balance sheet and anticipates a supportive defense spending environment. Morgan Stanley has an “overweight” rating and $345 price target for GD stock, which closed at $261.01 on Jan. 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 TransDigm’s proprietary products give it pricing power and its recent acquisitions should contribute additional value. Morgan Stanley has an “overweight” rating and $1,575 price target for TDG stock, which closed at $1,254.11 on Jan. 2.
Northrop Grumman Corp. (NOC)
Northrop Grumman is one of the world’s largest weapons and military technology producers. Liwag says Northrop’s preliminary 2025 guidance of between 3% and 4% revenue growth, roughly 24.5% free cash flow growth and year-over-year margin expansion suggest a profitable year ahead for the company. After an extended investment period, a pullback in spending should improve operational efficiency in 2025. Liwag says accelerating international sales, particularly defense systems sales, could be a particularly bright spot. Domestically, Liwag says Northrop is well aligned with top DoD priorities. Morgan Stanley has an “overweight” rating and $605 price target for NOC stock, which closed at $468.01 on Jan. 2.
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Axon Enterprise Inc. (AXON)
Axon Enterprise is a law enforcement hardware and technology solutions provider. In addition to supplying body-worn cameras and other hardware to law enforcement and military customers, Axon also provides training and cloud-based software services such as digital evidence management. Analyst Meta Marshall says investors shouldn’t be deterred by the stock’s full valuation. Marshall says Axon’s business may need some time to grow into its valuation, but Marshall has become more confident the company can generate durable revenue growth in the 25% to 30% range. Morgan Stanley has an “overweight” rating and $700 price target for AXON stock, which closed at $596.49 on Jan. 2.
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’s combination of strong execution and growing sales volumes in both commercial and defense aerospace creates opportunity for Howmet to expand margins. Liwag is bullish on the company’s strong cash flow, in-demand core products, consistent growth, healthy balance sheet and capital return potential. Morgan Stanley has an “overweight” rating and $125 price target for HWM stock, which closed at $110.79 on Jan. 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 headlines surrounding Amazon.com Inc. (AMZN), Microsoft Corp. (MSFT) and other major tech companies pursuing nuclear energy projects have boosted investor sentiment for small modular nuclear reactor projects and their suppliers, and that CW can be seen as a “pick-and-shovel” play on commercial nuclear energy growth. Curtiss-Wright’s core aerospace and defense business has been solid, but a nuclear power renaissance could create tremendous upside. Morgan Stanley has an “overweight” rating and $395 price target for CW stock, which closed at $351.35 on Jan. 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 investor day event in November highlighted the company’s long-term growth outlook. Liwag says Embraer has several key catalysts to watch, including additional orders for the C-390 Millennium military transport aircraft and the E2 commercial jet. Liwag is also optimistic Embraer could reinstate its dividend and even launch a new commercial aircraft. Morgan Stanley has an “overweight” rating and $45 price target for ERJ stock, which closed at $37.89 on Jan. 2.
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7 Best Defense Stocks to Buy Now originally appeared on usnews.com
Update 01/03/25: This story was previously published at an earlier date and has been updated with new information.
