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FEATURED ARTICLE |
Top 5 Defense Plays (and Whether They're Cheap) |
Geopolitics is heating up.
Government spending is expanding.
Missile inventories are being rebuilt globally. |
And the primes — the big contractors — are printing backlog numbers that would make most industrial CEOs jealous. |
But here's the Cheap Investor question: |
Are they actually cheap… or just expensive stocks with good headlines? |
Let's break it down Top 5 style. |
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1) RTX Corporation (RTX) |
Scoreboard |
2025 revenue: ~$74B Adjusted EPS: mid-$5 range Backlog: ~$200B+ Major exposure: Patriot, AMRAAM, missile defense, Pratt & Whitney engines
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RTX is one of the cleanest plays on missile replenishment and air defense demand. |
The Real Reason It's Moving |
Missile usage globally is running ahead of production capacity. Governments are accelerating orders for: |
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This directly benefits RTX's Raytheon segment. |
Is It Cheap? |
RTX trades at roughly: |
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For a company with: |
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That multiple isn't "deep value." |
But it's not "priced for perfection" either. |
Verdict: Reasonably valued quality compounder. Not a screaming bargain — but durable. |
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2) Lockheed Martin (LMT) |
Scoreboard |
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Lockheed is the backbone of U.S. air dominance and high-end missile systems. |
What the Market Is Really Saying |
Missile replenishment cycles (JASSM, PAC-3, HIMARS rockets) are driving incremental orders. |
But F-35 delivery pacing and program politics create noise. |
Valuation Check |
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This is a "cash return + backlog visibility" name. |
Verdict: Closer to fair value than cheap. Attractive on pullbacks, not when chasing headlines. |
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3) Northrop Grumman (NOC) |
Scoreboard |
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Northrop is the stealth and next-gen defense play. |
The Thesis |
High-margin, long-duration classified programs = stable earnings power. |
Missile and strategic modernization spending are secular drivers. |
Valuation |
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Verdict: Premium multiple justified by program mix. Not cheap — but not bubble territory either. |
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4) L3Harris (LHX) |
Scoreboard |
Revenue: ~$19B+ Heavy exposure to ISR, sensors, electronic warfare Strong 2026 growth outlook
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LHX is less headline-driven than missile pure plays but deeply embedded in modernization. |
Why It Matters |
Modern wars aren't just missiles.
They're: |
Sensors Drones Secure communications Space-based systems
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L3Harris sits in that sweet spot. |
Valuation |
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Verdict: Arguably the most "value-tilted" of the group. |
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5) Missile Supply Chain & Specialists |
This is where things get interesting. |
Mid-tier suppliers feeding propulsion, guidance, and solid rocket motors often: |
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They can look expensive — 22–25x earnings — but have higher upside torque. |
This is where asymmetry can live. |
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The Macro Tailwind: Government Spending |
Global defense budgets are rising: |
U.S. spending remains elevated NATO members increasing % of GDP allocations Missile stockpiles globally running low Multi-year replenishment cycles likely
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The key point: |
Defense demand is no longer cyclical.
It's structural. |
That changes valuation floors. |
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So… Are Defense Stocks Cheap? |
Let's define cheap. |
Cheap does not mean: |
10x earnings Deep discount to history
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Cheap means: |
Durable backlog Government-backed revenue Margin expansion potential Not priced for unrealistic growth
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Most primes today trade: |
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That's not deep value. |
But compared to: |
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They look rational. |
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Bull / Base / Bear |
Bull Case |
Continued geopolitical tension Multi-year missile production ramp Margin expansion as supply chains normalize Upward revisions to earnings
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Base Case |
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Bear Case |
De-escalation reduces urgency narrative Budget negotiations compress margins Stocks retrace after strong run
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Action Plan (Don't Get Cute) |
If you're conservative: |
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If you're moderate: |
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If you're aggressive: |
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Defense is a multi-year story. |
But that doesn't mean you back up the truck at any price. |
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Cheap Investor Checklist |
Over the next quarter, track: |
Backlog growth rates Missile production capacity expansion Margin commentary in earnings calls Free cash flow vs net income Buyback authorization changes NATO spending updates Pentagon supplemental budgets Book-to-bill ratios
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If backlog accelerates faster than valuation expansion, you have asymmetry. |
If valuation outruns earnings growth, patience wins. |
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Bottom Line |
Defense primes are not dirt cheap. |
But they are durable. |
If government spending continues rising and missile replenishment remains a priority, earnings visibility supports current valuations. |
If tensions cool materially, expect multiple compression. |
This is a quality-at-a-reasonable-multiple setup — not a deep bargain. |
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Disclaimer: This article is for informational purposes only and does not constitute investment advice. Investing involves risk, including the potential loss of principal. Always do your own research before making investment decisions. |
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