As global unrest escalates and active military operations unfold in Iran, defense has come into focus. Legislators are ramping up defense spending, fueling a significant rearmament drive that's reshaping the national security landscape.
The defense budget is skyrocketing, with $1 trillion allocated for 2026 alone and projections exceeding $1.5 trillion for 2027. In this environment, defense stocks are catching investors' eyes. Defense stocks offer stability through reliable business models and consistent government contracts. Companies like Lockheed Martin (LMT 0.98%) and RTX (RTX 0.33%) are positioned to benefit in this environment. Here's which one stands out as a better buy today.
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Lockheed Martin is experiencing incredibly strong demand as defense budgets grow
Lockheed has a strong aeronautics segment anchored by sales of its F-35 stealth combat aircraft, which provides it with a high-margin revenue stream. Because these aircraft require constant maintenance and software upgrades, like new sensors and weapon systems, these sales provide the company with earnings visibility for decades to come.
The company is also experiencing strong segment growth of 14% from its missiles and the fire control business, driven by a surge in global demand for HIMARS and PAC-3 interceptors. Last month, the company signed a framework agreement with the U.S. Department of Defense (DOD) to quadruple the production capacity of the Precision Strike Missile in response to Operation Epic Fury in Iran.
NYSE: LMT
Key Data Points
The move builds on Lockheed's $4.94 billion contract last year, and the company now has a record backlog of $194 billion, more than 2.5 times its annual sales. As defense budgets around the world grow, Lockheed's role as a top contractor will make it a top beneficiary.
RTX diversifies with defense and commercial businesses
While Lockheed Martin is a pure-play defense contractor, RTX has a more diversified business that combines Raytheon's missile expertise with Pratt & Whitney's commercial aerospace engines and Collins Aerospace's avionics. This helps the company diversify through its commercial aftermarket business, mitigating the budget dependence of defense.
Through Pratt & Whitney, RTX has over 85,000 engines in service both militarily and commercially. Collins Aerospace provides components like avionics and flight controls. Because these high-tech engine components are certified by the Federal Aviation Administration, RTX is often the only certified source, which provides it with a steady stream of cash flow.
NYSE: RTX
Key Data Points
Last August, the DOD awarded RTX a $50 billion umbrella contract to produce and sustain the Patriot missile defense system. The contract offers a 20-year firm commitment and includes the manufacturing of new Patriot fire units and radar sets, maintenance and repair of the global fleet, and supply chain management. As a result, RTX's backlog grew to $268 billion, with defense making up about 40% of this total.
Both are quality defense stocks
For investors weighing the two, Lockheed is good for dividend investors and a bet on a long-term structural increase in defense. It is more reliant on defense spending, and changes to future budgets could affect this business.
RTX, on the other hand, is more diverse with its defense and commercial aviation businesses. While both Lockheed and RTX are high-quality defense stocks to own, if I had to pick one, I'd give RTX a slight edge due to its more diversified business model.
