Three Defense Stocks Positioned to Gain from Increased Military Spending

Though some investors might think politics has little influence on investing, the reality is different. Important developments in Washington can unveil promising opportunities that investors should not ignore. A clear illustration of this occurred on March 14 when Congress approved a continuing resolution (CR) to fund the government through the summer. This not only avoids a government shutdown but also reflects the priorities of the new Congress, highlighting potential investment opportunities.

One area that stands to benefit significantly is defense spending. In recent times, many defense stocks have declined due to fears of potential budget cuts as a part of the Department of Government Efficiency (DOGE) initiative. However, the newly passed CR allocates an additional $7 billion in funding to the Department of Defense (DoD), indicating a renewed focus on military spending.

This scenario presents a strong case for investors to explore three defense stocks which may perform well moving into 2025.

Lockheed Martin: A Leading Force at Attractive Valuations

Lockheed Martin Stock Forecast Today
12-Month Stock Price Forecast:
$554.20
17.81% Upside

Moderate Buy based on 15 analyst ratings

Current Price	$470.44
High Forecast	$704.00
Average Forecast	$554.20
Low Forecast	$377.00

Lockheed Martin Corp. (NYSE: LMT) is recognized as one of the largest defense contractors worldwide. The company recorded its highest revenue year in 2024, yet its stock price has dipped over 17% from its peak in October 2024.

While some investors speculate that a potential peace dividend from the resolution of the Russia-Ukraine conflict could harm LMT, the need for US defense modernization and new technologies remains vital. The focus on enhancing artificial intelligence and cybersecurity infrastructure favors Lockheed Martin’s services.

Moreover, investors can benefit from LMT’s current valuation, with a price-to-earnings (P/E) ratio of around 21x earnings and approximately 17x forward earnings, which is quite competitive compared to the average P/E of approximately 25x in the aerospace sector.

Northrop Grumman: Consistent Revenue and Backlog Security

Northrop Grumman Stock Forecast Today
12-Month Stock Price Forecast:
$542.88
10.44% Upside

Moderate Buy based on 18 analyst ratings

Current Price	$491.56
High Forecast	$592.00
Average Forecast	$542.88
Low Forecast	$477.00

Like Lockheed Martin, Northrop Grumman Corp. (NYSE: NOC) has experienced a lucrative year with revenue surpassing $41 billion. Despite this, NOC’s stock has dropped roughly 8% in the last six months.

Northrop has already secured over $50 billion in contracts during 2024, which contributes to a robust backlog of $91.5 billion. One of the notable contracts is the B-21 Raider for the United States Air Force (USAF), aimed at replacing the older B-1B Lancer and B-2 Spirit aircraft. With no immediate threat to defense budget cuts and growing military investments in European nations, these contracts appear stable.

Similar to Lockheed, Northrop Grumman’s stock also boasts an appealing P/E ratio of around 17x.

Axon Enterprise: Innovative Technologies for Law Enforcement Growth

Axon Enterprise Stock Forecast Today
12-Month Stock Price Forecast:
$604.67
6.43% Upside

Moderate Buy based on 14 analyst ratings

Current Price	$568.11
High Forecast	$800.00
Average Forecast	$604.67
Low Forecast	$365.00

Axon Enterprise Inc. (NASDAQ: AXON) operates in the realm of law enforcement technologies. Currently, Axon is priced high, trading at a P/E of 139x and a forward P/E of 351x. The company is well-known for providing essential tools such as less-lethal weapons (e.g., tasers), body cameras, and cloud software, with a footprint in both law enforcement and government contracts.

Interestingly, analysts have been steadily raising their price targets for Axon. Over the last year, AXON stock has surged by 73%. Despite being viewed as overvalued a few months ago, the current price is now seen as a discount, as it stands about 11% below the average analyst target.

Conclusion

As defense spending increases due to the new funding from Congress, companies like Lockheed Martin, Northrop Grumman, and Axon Enterprise appear well-placed to take advantage of these developments. Investors may want to keep a close eye on these stocks as the military landscape evolves.

defense, stocks, military