The Best Best Defense Stocks for Smart Stock Analysis
The best defense stocks share three characteristics: recurring government revenue, pricing power on long-cycle contracts, and the financial strength to fund R&D without diluting shareholders. This list focuses on the names that score well across those dimensions, not on the ones with the most media attention.
Defense spending in the U.S. topped $886 billion in fiscal year 2024 and is projected to grow above $900 billion through 2026. That macro backdrop creates a large revenue base, but it does not make every company in the sector a good investment at current prices.
Key Takeaways
- The best defense stocks tend to have long-term government contracts with fixed cost structures, which produces predictable cash flow but limits margin expansion.
- Dividend growth is a meaningful quality signal in this sector; companies with 10+ year dividend streaks demonstrate disciplined capital allocation.
- EV/Revenue is the most useful first-pass valuation metric for pure-play defense contractors because EBITDA margins vary widely by program mix.
- The top five U.S. primes (Lockheed, RTX, Northrop, General Dynamics, L3Harris) command a premium because of their classified program access, which smaller contractors cannot replicate.
- Kratos Defense and Palantir represent the high-growth, high-multiple end of the sector; mature primes represent the income and stability end.
- Running any defense name through our screener on the VMCI framework quickly separates the quality compounders from the contract-dependent cyclicals.
The Top Defense Stocks by Investment Profile
Not all defense stocks serve the same investor. Below is a breakdown by investment profile, not by arbitrary ranking.
1. Lockheed Martin (LMT): The Income Compounder
Lockheed is the largest pure-play defense contractor in the world by revenue, with $67.6 billion in 2024 sales. The F-35 program alone generates multi-decade revenue. Lockheed has raised its dividend for 22 consecutive years, and the yield sits near 2.8% as of mid-2026.
The forward P/E is around 17x, below the S&P 500 median, which makes it one of the few large-cap names where you receive income, quality, and a reasonable multiple in the same package.
2. RTX Corporation (RTX): Aerospace Plus Defense
RTX combines Pratt & Whitney jet engines with the Raytheon missile systems business. The aerospace segment recovered strongly post-2020, while the defense side carries multi-year backlog in air defense systems (Patriot, NASAMS) that benefited from elevated demand through European rearmament.
Forward P/E near 19x. Dividend yield around 2.1%. The key risk is the GTF engine powder metal issue, which created recall costs and potential liability through 2026.
3. Northrop Grumman (NOC): The Strategic Programs Play
Northrop builds the B-21 Raider stealth bomber, the GBSD intercontinental ballistic missile program, and a range of space and intelligence systems. These are 20-to-30 year programs. Revenue visibility is exceptional.
The company trades near 18x forward earnings and yields about 1.6%. ROIC runs around 15%, which is lower than consumer technology but reasonable for a capital-intensive defense platform business.
4. General Dynamics (GD): Defense Plus Gulfstream
General Dynamics operates the combat systems division (tanks, munitions) alongside a commercial aerospace business through Gulfstream jets. The Gulfstream business adds non-government revenue, which diversifies the cyclicality slightly. It also adds sensitivity to corporate jet demand, which softens during recessions.
Forward P/E near 16x. Dividend growth for over 30 consecutive years. Free cash flow conversion is consistently above 90% of net income, which is one of the strongest cash generation records in the sector.
5. L3Harris Technologies (LHX): Communication Systems and Intelligence
L3Harris is a $20 billion revenue defense electronics company specializing in communications, intelligence, and precision weapons. The company generates roughly 70% of its revenue from the U.S. government.
It trades near 17x forward earnings and has grown its dividend since the 2019 merger. The integration of the legacy L3 and Harris businesses created margin compression in the early years; the benefit is now coming through as cost combined effects land.
6. Kratos Defense (KTOS): The High-Growth Satellite and Drone Play
Covered in detail in the Kratos defense stock checklist, KTOS is the sector's clearest growth-at-a-premium story. Forward P/E above 50x. Unmanned systems revenue growing above 15% annually. The risk-reward is very different from the primes above.
Valuation Comparison Table
| Company | Ticker | Forward P/E | EV/Revenue | Dividend Yield | 3yr Revenue CAGR |
|---|---|---|---|---|---|
| Lockheed Martin | LMT | 17x | 1.5x | 2.8% | 3% |
| RTX Corporation | RTX | 19x | 1.8x | 2.1% | 6% |
| Northrop Grumman | NOC | 18x | 1.9x | 1.6% | 4% |
| General Dynamics | GD | 16x | 1.4x | 1.9% | 5% |
| L3Harris | LHX | 17x | 1.6x | 2.3% | 3% |
| Kratos Defense | KTOS | ~55x | 3.5x | 0% | 10% |
What Makes a Defense Stock "Best" for Your Portfolio
The answer depends on what you are optimizing for.
For income and stability, Lockheed and General Dynamics score highest. Both have decades of dividend growth, predictable backlog, and valuations that do not price in aggressive assumptions.
For growth, Kratos and Palantir carry the premium multiples. Both require you to believe in program ramps that have not yet fully materialized. The upside is real if the programs scale. The downside from current multiples is also real if they slip.
For balance, RTX and Northrop offer a middle path. Growing end markets, reasonable multiples, and dividend income that beats most technology names.
The VMCI Score framework assigns 35% weight to Value and 30% to Quality. At current prices, Lockheed and General Dynamics score best on Value. All five primes score well on Quality given consistent free cash flow and long contract visibility. Kratos scores highest on Growth but lowest on Value.
How to Screen Defense Stocks Properly
A forward P/E screen alone will mislead you. Defense companies recognize revenue on long-term contracts using percentage-of-completion accounting. That creates timing differences between cash received and revenue reported. Free cash flow is the more reliable metric.
Run any defense stock through these four checks before forming a view.
First, funded backlog divided by annual revenue. A ratio above 3x gives you three-plus years of visible revenue. Below 2x, you are dependent on near-term contract wins.
Second, EV/EBITDA versus 5-year history. If a stock is trading at a significant premium to its own 5-year average multiple, you need a specific reason that justifies paying more today than at any point in the last five years.
Third, ROIC versus cost of capital. Defense contractors have relatively low cost of capital because their cash flows are stable. An ROIC above 12% consistently indicates the business is creating value, not just growing revenue at the government's expense.
Fourth, dividend growth consistency. A 10+ year streak of increases is a hard filter that removes the majority of speculative names from consideration automatically.
Run all four checks in under 10 minutes using our screener with the defense sector filter.
Further reading: SEC EDGAR · FRED Economic Data
Related ValueMarkers Resources
- Enterprise Value to Revenue (EV/Revenue) — Enterprise Value to Revenue is the metric used to how cheaply a stock trades relative to its fundamentals
- Enterprise Value to EBITDA (EV/EBITDA) — Enterprise Value to EBITDA is the metric used to how cheaply a stock trades relative to its fundamentals
- Forward Pe — Glossary entry for Forward Pe
- Kratos Defense Stock — related ValueMarkers analysis
- Defense Stock Analysis — related ValueMarkers analysis
- Risk Adjusted Return — related ValueMarkers analysis
Frequently Asked Questions
what stocks to buy
The stocks worth buying are the ones trading at a meaningful discount to intrinsic value with a clear catalyst for that discount to close. In the defense sector as of mid-2026, the large-cap primes like Lockheed Martin and General Dynamics trade at the most reasonable multiples relative to their earnings power. Use the ValueMarkers screener to filter by forward P/E below 18x combined with ROIC above 12% to generate a starting list for your own research.
what are penny stocks
Penny stocks are shares trading below $5, often on the OTC market rather than major exchanges. They are not the same as small-cap defense companies, which trade on Nasdaq or the NYSE with regulatory oversight and audited financials. Legitimate defense contractors like Kratos, even at lower price points in their history, trade on major exchanges and produce quarterly SEC filings.
what are the best stocks to buy right now
There is no universal answer because the best stock for you depends on your time horizon, tax situation, and risk tolerance. For defense exposure in 2026, the names with the strongest combination of dividend growth, contract backlog, and below-sector-average multiples are Lockheed Martin, General Dynamics, and L3Harris. Run each through the ValueMarkers VMCI Score before forming a final view.
what is eps in stocks
EPS stands for earnings per share. It is net income divided by the weighted average number of diluted shares outstanding. For defense companies, GAAP EPS often understates economic earnings because large non-cash charges from acquisition amortization run through the income statement. Always compare EPS to free cash flow per share when analyzing defense contractors.
what is beta in stocks
Beta measures a stock's price sensitivity relative to a broad market index like the S&P 500. A beta of 1.0 means the stock moves in line with the market. Defense stocks typically carry betas between 0.7 and 0.9, reflecting the sector's relatively stable government revenue. Kratos carries a higher beta near 1.4 because its growth-oriented business model makes it more sensitive to risk sentiment shifts.
what are blue chip stocks
Blue chip stocks are large, financially sound companies with long operating histories, consistent earnings, and established market positions. In the defense sector, Lockheed Martin, RTX, Northrop Grumman, General Dynamics, and L3Harris all qualify as blue chips. They have decades of operating history, investment-grade balance sheets, and consistent dividend growth records.
Use our screener to apply the four checks outlined above to any defense stock and build your own ranked list based on your exact investment criteria.
Written by Javier Sanz, Founder of ValueMarkers. Last updated April 2026.
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Disclaimer: This content is for informational and educational purposes only and does not constitute investment advice, a recommendation, or an offer to buy or sell any security. Past performance does not guarantee future results. Consult a licensed financial advisor before making investment decisions.