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 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, according to Morgan Stanley:
Stock | Upside Potential* |
TransDigm Group Inc. (ticker: TDG) | 16.3% |
General Dynamics Corp. (GD) | 22.5% |
Northrop Grumman Corp. (NOC) | 19.0% |
Howmet Aerospace Inc. (HWM) | -1.2% |
Axon Enterprise Inc. (AXON) | 7.3% |
Curtiss-Wright Corp. (CW) | 13.8% |
Embraer SA (ERJ) | 9.8% |
As of Jan. 31 close.
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 recent years, 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%. Analyst Kristine Liwag says TransDigm’s large amount of proprietary products helps the company maintain pricing power. Morgan Stanley has an “overweight” rating and $1,575 price target for TDG stock, which closed at $1,353.34 on Jan. 31.
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. Liwag says soft Gulfstream G700 delivery numbers are merely a temporary setback for General Dynamics and not a cause for concern. She says the company’s balance sheet is strong and the current geopolitical climate will support its defense business. Morgan Stanley has an “overweight” rating and $315 price target for GD stock, which closed at $256.98 on Jan. 31.
Northrop Grumman Corp. (NOC)
Northrop Grumman is one of the world’s largest weapons and military technology producers. Liwag says Northrop and other defense contractors associated with large programs face some headline risks under the Trump administration. However, she says Northrop Grumman remains in-line with the DoD priorities, including its exposure to two legs of the nuclear triad with the B-21 bomber and the Sentinel intercontinental ballistic missile system. Liwag says the company has an attractive free cash flow growth profile and an opportunity for margin expansion in 2025. Morgan Stanley has an “overweight” rating and $580 price target for NOC stock, which closed at $487.27 on Jan. 31.
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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 generates sizable cash flow, has a solid balance sheet and is positioned for ongoing growth in the coming years. She says Howmet provides an attractive blend of growth and quality for investors, and the company’s capital return program should also support its stock price. Howmet is expected to report earnings on Feb. 13, which could trigger a price target update. Morgan Stanley has an “overweight” rating and $125 price target for HWM stock, which closed at $126.58 on Jan. 31.
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 software is making up a growing percentage of Axon’s overall revenue, positioning the company to maintain its impressive 25% to 30% revenue growth for the foreseeable future. However, Marshall says investors may need to be patient for Axon to grow into its current valuation. Morgan Stanley has an “overweight” rating and $700 price target for AXON stock, which closed at $652.18 on Jan. 31.
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 aerospace and defense investment with major nuclear energy upside. She says the company has executed its core business consistently and could benefit from big tech companies investing heavily in small modular nuclear reactor projects to power their data centers. Morgan Stanley has an “overweight” rating and $395 price target for CW stock, which closed at $346.94 on Jan. 31.
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 didn’t unveil any groundbreaking news at its investor day event in November, but the event reinforced her bullish outlook for Embraer’s business in the coming years. She says Embraer’s key growth catalysts include additional orders for the C-390 Millennium military transport aircraft and the E2 commercial jet, as well as reinstatement of a dividend. Morgan Stanley has an “overweight” rating and $45 price target for ERJ stock, which closed at $40.97 on Jan. 31.
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7 Best Defense Stocks to Buy Now originally appeared on usnews.com
Update 02/03/25: This story was previously published at an earlier date and has been updated with new information.