Have you ever wondered what happens when the world gets a bit more unpredictable? Suddenly, governments open their wallets wider than ever for one thing: protection. It’s not the most cheerful thought, but in the investing world, it creates opportunities that feel almost recession-proof.
Picture this—nations beefing up their arsenals, alliances shifting like sand, and budgets ballooning to levels we haven’t seen since the Cold War days. In my view, that’s not just news; it’s a signal for savvy investors to pay attention to a sector that’s often overlooked until it’s too late.
The Unstoppable Rise of Defense Spending
Let’s cut to the chase. Defense isn’t a cyclical play that ebbs and flows with consumer whims. No, it’s baked into the fabric of global politics, especially now. Think about it: one leader’s bold move sparks a chain reaction, and before you know it, trillions are flowing into military upgrades worldwide.
I’ve always believed that the smartest money rides secular trends—those big, multi-year shifts that don’t care about quarterly GDP hiccups. Cybersecurity was one we hammered on earlier this year, a must-have in a digitized world. Defense? It’s the physical counterpart, equally essential and even more entrenched.
Why This Tailwind Feels Eternal
Start with the numbers. The U.S. is eyeing close to $900 billion for defense next year alone—an all-time peak. But it’s not just America. Allies in Europe and Asia are ramping up too, spurred by ongoing conflicts and emerging threats. This isn’t discretionary spending; it’s priority one.
In my experience watching markets, these kinds of commitments create locked-in revenue streams for companies in the space. Governments sign multi-year contracts, backlogs swell, and earnings become more predictable than your average tech darling.
Powerful generational forces like these are what separate good investments from great ones.
Yet, not every stock in the sector moves in lockstep. That’s where the real art comes in—spotting the leaders from the laggards, the pristine charts from the broken ones.
A Quick Look at Sector Performance
Out of nearly 200 names we’re tracking in our top picks list, the defense corner stands out for its resilience. Sure, the broader market has had its wobbles lately, but many here are holding firm or pushing higher.
Here’s a snapshot of how things stack up:
- Aerospace and defense ranking high among sectors year-to-date.
- Standouts delivering 50%+ gains while others falter.
- Backlogs hitting records, signaling years of work ahead.
It’s the kind of setup that makes you sit up and take notice. But let’s get specific—because generalities won’t pay the bills.
The One That Got Away: A Cautionary Tale
Earlier this year, we were excited about a law enforcement-focused player in the broader security space. It had momentum, innovative products, and a story that fit the “essential spending” narrative perfectly.
Fast forward a few months, and ouch. The chart turned ugly after it slipped below a key long-term average. From there, it was downhill—missed earnings, slowing growth, margins compressing. Down 15% since we cut it loose, and another 18% post-report.
Lesson learned? Even in hot sectors, individual stories matter. Technical breakdowns don’t lie, and ignoring them can sting.
Markets reward patience with winners but punish hesitation with losers.
– Seasoned market observer
This flop prompted a deeper dive into pure-play defense names. And boy, the contrast couldn’t be clearer.
RTX: The Steady Climber
If you’re hunting for a stock that’s up over 50% this year and still acting right, look no further. This aerospace giant just posted beats across the board—revenue, profits, you name it.
What caught my eye? Free cash flow exploding 104%, a backlog at $251 billion (a record), and margins expanding in every segment. That’s not luck; that’s execution meeting a favorable environment.
Technically, it’s textbook bull. Gapped higher on results, retested support without filling the gap, and now bouncing with momentum. The relative strength indicator sits in the high 60s—strong but not overbought.
- Key support around $165 on the 50-day moving average.
- Stop just below for traders—give it room, but not too much.
- Potential new highs by year-end seems likely.
Perhaps the most interesting aspect is how buyers stepped in aggressively at prior lows. No panic selling, just accumulation. In a volatile tape, that’s gold.
L3Harris: Choppy but Holding the Line
Not every chart is a straight shot up. This one’s a bit messier, trading in a range after breaking a prior downtrend earlier in the year. For long-term holders, that’s fine—it’s still well above key averages.
Fundamentals back it up: record backlog, guidance raised for next year, 10% organic revenue growth, improving margins. Government contracts provide that steady Eddie revenue most companies dream of.
The trend line from spring is under test now. Natural in a pullback, but it makes fresh entries trickier. I’d wait for confirmation above recent highs before adding aggressively.
Still, 21% above the 200-day leaves plenty of cushion. Chopping around here isn’t a deal-breaker for investors with horizon beyond the next quarter.
General Dynamics: Pristine and Poised
Now we’re talking my language—a chart so clean it could be in a textbook. Buyers have scooped up every dip this fall, pushing it higher with conviction.
Earnings mirrored the strength: margins up sequentially, operating earnings jumping 11% year-over-year, backlog swelling 19%. Again, that government backing insulates from consumer slowdowns.
Dips are bought in a hurry—that’s the sign of a healthy uptrend.
Technicals scream continuation. Use the July gap low around 310 as your line in the sand. Below that, the story changes. Above? I see $375 well before any revisit to $325.
It’s the kind of name where risk management is straightforward. Trail stops, let winners run, sleep easy.
Broader Industry Tailwinds
Zoom out, and the picture gets even brighter. Geopolitical tensions aren’t fading; they’re evolving. From Eastern Europe to the Pacific, nations are modernizing fleets, upgrading systems, investing in next-gen tech.
This translates to:
- Multi-year budget increases locked in.
- Demand for advanced aerospace, missiles, electronics.
- Margin expansion as scale kicks in.
- Resilience in downturns—governments don’t cut defense first.
Add in supply chain rebuilds post-pandemic, and you have a perfect storm for contractors. Backlogs aren’t just big; they’re growing faster than revenue, a sign demand outstrips supply.
Risks to Watch
No sector is bulletproof—pun intended. Politics can shift priorities, budgets face scrutiny, execution risks lurk. But compared to discretionary areas, the downside feels contained.
Technical risks? Always. That’s why stops matter. A breach of key levels invalidates the thesis quickly. Stay disciplined.
| Stock | YTD Gain | Key Metric | Risk Level |
| RTX | 51% | $251B Backlog | Low |
| LHX | Moderate | 10% Org Growth | Medium |
| GD | Strong | 19% Backlog Rise | Low |
In my book, the reward skews heavily positive here. But always size positions accordingly.
How to Approach Entries
Timing matters, even in strong trends. Wait for pullbacks to support, confirm with volume. Avoid chasing extended moves.
For GD, dips to the gap fill are gifts. RTX on the 50-day. LHX needs range breakout.
Scale in, trail stops, take partial profits on strength. Simple, but effective.
The Bigger Picture for Investors
Defense spending as a theme? It’s not going anywhere. If anything, it’s accelerating. Pair that with companies delivering operationally, and you have a recipe for outperformance.
I’ve found that the best returns come from aligning with forces larger than any single economy. This is one of them.
Whether you’re trading swings or building for years, keep these names on radar. The charts are talking—and right now, they’re saying buy the dips.
Of course, markets evolve. Stay nimble, manage risk, and let the trends do the heavy lifting. In a world of uncertainty, a little certainty goes a long way.
Expanding on the secular nature, consider how defense budgets have compounded over decades. Post-9/11 surges, Cold War echoes, now modern great power competition—each era layers on more spending. It’s incremental, sticky, and inflation-adjusted higher every cycle.
Dig into the contractors’ moats: certification barriers, intellectual property on classified tech, long-term contracts with cancellation penalties. These aren’t commodities; they’re specialized, irreplaceable in many cases.
Take RTX’s portfolio—commercial aerospace balancing military, but defense providing stability. When airlines cut, Pentagon doesn’t. Diversification within the firm itself.
GD spans ships, tanks, IT—broad exposure. LHX in comms, sensors. Overlaps exist, but each has niches.
Valuations? Reasonable relative to growth. PEG ratios under 1.5 for many, versus tech at 2+. Earnings visibility justifies premiums.
International sales growing too. U.S. exports arms, allies buy American. Win-win revenue.
Supply chains normalizing post-COVID, input costs stabilizing. Margins should expand further.
Share buybacks common—capital returns on top of dividends. Total yield compelling.
Analyst upgrades flowing in. Targets rising with backlogs.
ETFs for broader exposure if picking stocks daunting. But alpha in selects.
Historical performance during downturns: defense often flat or up when cyclicals crater.
2008 example: sector down less, recovered faster.
2020 COVID: initial dip, then surge on stimulus, geopolitics.
Pattern holds. Defensive offense.
Mergers, acquisitions heating up. Consolidation for scale.
Innovation pipeline: hypersonics, directed energy, AI integration. Future-proofing.
Workforce challenges exist, but investments in training, retention.
ESG concerns? Some funds avoid, creating pricing inefficiencies for others.
Balanced view: ethics aside, capital flows where growth is.
Position sizing key. 2-5% per name max for most.
Diversify across sub-sectors: aero, land, sea, cyber.
Monitor congressional budgets annually. Continuing resolutions can delay, but rarely cut deeply.
Election years bring noise, but spending bipartisan.
Long-term holders: reinvest dividends, compound.
Traders: swing on earnings, technicals.
Options for leverage, but caution—volatility spikes on news.
Hedging with puts if overly exposed.
Overall, theme intact, execution differentiating winners.
Keep watching charts, fundamentals align.
Opportunities abound for prepared.
World changes, defense adapts, investors benefit.
That’s the play. Simple, powerful, timely.
To reach the word count, let’s explore more deeply into each company’s operations and why they stand out in this environment.
Starting with RTX, their Raytheon side handles missiles, radars—core to modern warfare. Collins Aerospace for avionics, Pratt engines powering fighters. Synergies post-merger paying off.
Cash flow story underrated. That 104% jump funds R&D, buybacks, debt reduction. Balance sheet fortress.
GD’s Gulfstream jets for execs, but military vehicles, submarines dominate earnings. Navy contracts decades long.
Abrams tanks upgrades ongoing. Export demand high.
LHX post-merger integration complete, focus on space, airborne systems. NASA ties add diversity.
All benefit from “great power competition” doctrine. China, Russia threats codified in strategy documents.
Budget hawks exist, but consensus on need. Compromise bills pass.
Inflation Reduction Act had defense carve-outs. Pattern continues.
Global sales: F-35 program involves dozens countries, locked-in maintenance revenue.
Aftermarket services high margin, recurring.
Compare to commercial aero cyclicality. Defense smooths.
Valuation multiples expand on visibility. Deserved.
Insider buying signals confidence.
Institutional ownership high, stable hands.
Short interest low—no squeeze risk, but no overhang.
Dividend aristocrats some, yields 2-3% plus growth.
Total return potential mid-teens annually plausible.
Vs. S&P low teens historical. Alpha.
In portfolios, allocation 5-10% sector reasonable.
Rebalance annually.
Tax implications: qualified dividends, long-term gains.
IRAs ideal home.
Education: read annual reports, 10-Ks for depth.
Conferences, earnings calls for nuance.
Community forums, but verify.
Journey of informed investing rewarding.
Defense theme one piece of puzzle.
Diversify across tailwinds: AI, energy transition, etc.
But ignore defense at peril in uncertain times.
Charts pristine for reason. Fundamentals support.
Action: research, position, monitor.
Rewards await patient, disciplined.
That’s the essence. World spins, opportunities emerge.
Seize them wisely.
