The 7 Best Defense Stocks to Buy for Our Dangerous World

The best defense stocks may have a banner year ahead.

Last year, Russia’s invasion of Ukraine began. That war continues this year, validating the world’s increased investments in military, defense, and aerospace equipment.

Last Dec. 2022, Japan hiked its annual defense budget by 25%. It will buy more weapons including Tomahawks. Germany hiked its defense budget by up to EUR 10 billion in 2024. This aligns with German Chancellor Olaf Scholz meeting the North Atlantic Treaty Organization’s guideline of spending 2% of the country’s gross domestic product.

President Biden has outlined the importance of out-competing China globally. As tensions escalate with the Asian country, the U.S. needs to assist Taiwan and neighboring countries.

Investors will have a strong portfolio by holding seven of the best defense stocks.

General Dynamics (GD)

General Dynamics (NYSE:GD) is not only a great aerospace and defense contractor but a defensive income stock. The company increased its dividend by 4.8% year over year for shareholders of record on Apr. It increased its dividend 26 consecutive times annually.

GD stock slipped ahead of the company’s earnings report. The market reacted to three deliveries pushed out to the next quarterly reporting period.

Chief Executive Officer Phebe Novakovic said that General Dynamics could not complete one of the orders in time. A customer delayed two international deliveries. Impatient investors should take advantage of the stock’s weakness. The company will probably meet its production targets in the next year.

General Dynamics expects the elevated threat environment will materially increase demand for army and land forces capabilities. Its backlog and its order book continue to grow.

Expect contracts for combat vehicles from Europe – including Poland, Romania, and Switzerland – to increase. General Dynamic’s revenue will also grow from the corresponding increase in sales of ammunition and projectiles.

Heico (HEI)

Heico (NYSE:HEI) is an aerospace and electronics firm. In the first quarter, it posted a 27% increase in net sales. It recorded a record $620.9 million in revenue in Q1/2023. The steady backlog growth suggests a long-term rise in HEI stock.

Heico’s backlog is around $856 million. The Electronics Technologies Group (“ETG”) subsidiaries are unique. They supply mission-critical, high-reliable products for customers.

It is an irreplaceable business that benefits from strong margins. Shareholders should expect flight support and ETG demand to increase as government defense budgets expand. The disruption in the supply chain is easing. By later this year and into next year, expect Heico to fulfill orders and record higher revenues.

ETG margins will fluctuate in the coming quarters. Sales of high-margin products will vary. The product mix will shift favorably as customers buy Heico’s more profitable goods. For example, the demand for components in missile defense is strong. Governments are investing more in defensive equipment. This will lift sales of flight support and related electronics.

Howmet Aerospace (HWM)

Howmet Aerospace (NYSE:HWM) manufactures components for jet engines and for aerospace applications. In the fourth quarter of 2022, it reported revenue of $1.5 billion, up by 18% year over year.

The firm increased shareholder returns by buying back stock worth $65 million, paying a dividend of four cents a share. It also bought back $9 million in debt.

This is among the defense stocks to buy after defense aerospace revenue grew by 13%. Howmet managed the customer inventory correction for the F-35 (combat aircraft). Looking ahead, the company expects its defense unit to grow in the single-digit percentage in 2023.

It will have less overhang from the F-35 structures inventory. In addition, Howmet benefits from strong demand for the F-35. Builds for this aircraft are high throughout the rest of the decade.

Howmet has a diversified business. It supports aerospace, drones, and helicopters. Gas turbine revenues will also grow in the single-digit percentage. As a result, investors benefit from Howmet’s exposure to the oil and gas market.

L3Harris Technologies (LHX)

L3Harris Technologies (NYSE:LHX) is a good income stock after it increased its cash dividend. Its continued contract announcement affirms its growth ahead. On March 6, L3Harris announced a contract to secure long-lead material for the Viper Shield electronic warfare system.

L3Harris is expanding its growth by acquiring Aerojet Rocketdyne (NYSE:AJRD). This firm has $7 billion in backlog. The extended business cycle will increase revenue visibility over several years. It has several multi-year programs that are coming due. As a combined company, L3Harris may renegotiate better terms. This will increase its profit margins.

L3Harris will offer strong alternatives for the U.S. Department of Defense. It will compete to win defense contracts in the munitions space. To strengthen its air and land markets, the company is investing in advanced Tactical Data Link. This will expand its waveform library.

In the maritime sector, L3Harris has an autonomous undersea vehicle. It recently achieved its first-ever repetitive submerged launch and recovery from a torpedo tube. This is the first step in achieving the nation’s autonomous undersea solution.

Lockheed Martin (LMT)

Lockheed Martin (NYSE:LMT) has a $5 billion potential from products like HIMARS and GMLRS.

Chief Financial Officer Jay Malave said that PAC-3 is an integrated air and missile defense that is a primary driver of its missiles and fire control market.

When Poland said it would spend 4% of its gross domestic product on defense in 2023 it was the highest current level in NATO. It also translates to $1.5 billion in sales for Lockheed in the second half of this year.

Lockheed is one of the best defense stocks to own because orders keep rising. It will realize higher revenue when it fulfills orders with deliveries, probably in late 2024 into 2025.

CFO Malave said that Turkey wants to buy more F-16s. This would lead to additional orders of up to 300 aircraft. India is interested in F-21s, creating an opportunity for Lockheed Martin. Investors should look for governments planning to spend more on the military. This will result in more contract announcements for Lockheed.

Northrop Grumman (NOC)

Northrop Grumman (NYSE:NOC) pays a quarterly dividend of $1.73 a share. Besides earning an income, shareholders have assurances from its 4-year trailing book-to-bill ratio of 1.2 times. The strong backlog enabled Northrop to raise its sales outlook from 4% to 5% in 2023.

This defense stock benefits from the urgent need for new capabilities in the B-21 and the Sentinel. Northrop is working with its customers to deliver those products on schedule. The timing to meet a tight timeline is critical when deterring aggression around the world.

After Russia invaded Ukraine, customers reviewed their defense needs. They required a re-stockpiling of current weapons. They also invested in capabilities that Northrop could provide.

Shareholders are investing in a company that is balancing the strong backlog growth in research and development. It is assuring its technology advancements by increasing R&D and capital expenditures by 7.5% this year.

Raytheon Technologies (RTX)

Raytheon Technologies (NYSE:RTX) expects strong demand ahead. It has a long product cycle, which lets it invest around $5 billion in capital expenditure and research.

Raytheon will thrive as governments spend more on National defense and national security. They need modern next-generation space ground systems to get ahead of the enemy. They also need less advanced technical solutions that Raytheon may provide. For example, Blue Canyon Technologies will offer low-earth-orbit.

Raytheon shares will benefit from the DoD raising its priority on fighter jets. This includes both the F135 and F-35. To protect its competitive positioning and market share, it has an F-135 engine core upgrade that increases its range by improving fuel burn rates. Pratt’s F-35 engine core upgrade will enter service by 2028.

In the aerospace segment, demand for small engines will lift the Pratt business. In the commercial plane market, it has 10,000 engines between the V2500 and the GTF engine.

On the date of publication, Chris Lau did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.