The defense industry consists of a group of companies battling for contracts from a single customer with a seemingly insatiable appetite for its products.

The U.S. government spends more than $700 billion annually on defense, as well as billions more on intelligence and civil agencies that manage IT networks and consulting services. A good portion of the total military spending goes to salaries and benefits for soldiers and other nonprocurement purposes, but the military also spends a hefty chunk on the tanks, ships, and planes built by defense contractors.

A tank silhouetted against a sunset.

Image source: Getty Images.

This is an industry comprised of a handful of massive companies that deal directly with the government, or primes, which lead the design and manufacturing effort for new equipment, and a large number of smaller companies that supply components or specific services largely as subcontractors on bigger projects.

Why invest in defense stocks?

It's the large, prime contractors that get most of the attention from investors, and rightly so. The primes, so called because they mostly deal directly with the government instead of serving as subcontractors to other companies, have streamlined to become highly focused specialists competing for multibillion-dollar contract awards. Factoring in dividends, each of the five largest defense contractors has outpaced the S&P 500 over the past 10 years.

NOC Total Return Price Chart

Defense Primes 10-Year Total Return vs. S&P 500 data by YCharts.

Defense stocks tend not to be highfliers like tech stocks, but they do offer predictable and stable returns and tend to move based on what is going on in Washington rather than on the cyclical movement of the economy. They can offer a mix of slow but steady growth and income to a portfolio -- and thanks to the extended time frame of government contracting, they can offer revenue predictability well into the future.

Defense investing 101

Before we take a detailed look at specific companies, it's important for investors to know a few basics about the defense industry. Broadly speaking, any company that takes the bulk of its revenue from government customers, be it the Pentagon, civil agencies, or intelligence services, is considered a defense contractor.

Defense investors are focused on two kinds of companies: the more traditional contractors that make tanks and warplanes and the service companies that manage IT networks, provide consulting and analytic services, and take on other outsourced tasks like logistics for the government customer.

There is some overlap, but following a period of intense consolidation during the 1990s, most of the large contractors are a blend of diversity and specialization. Most have at least two areas of emphasis, be it warplanes and missiles or ships and tanks, so they are not overly reliant on any one contract. But none is a jack of all trades able to compete for whatever the Pentagon desires.

The key to investing in the sector is to choose carefully between the contractors based on areas of Pentagon emphasis and relative valuation gaps between the companies that can be explained away or should ease over time.

Here's a look at some of the biggest names in both the defense equipment and government services sectors.

Top Defense Companies

Ticker Symbol


Lockheed Martin



General Dynamics


$31.68B (defense only)

Northrop Grumman








$23.2B (defense only)

L3Harris Technologies


$16B (estimate)

Huntington Ingalls



Revenue for trailing 12 months. Source: Yahoo! Finance, company reports.

Top Services Companies

Ticker Symbol


Leidos Holdings



Booz Allen Hamilton



SAIC International


$6.3B (estimate)

Revenue for trailing 12 months. Source: Yahoo! Finance, company reports.

Lockheed Martin: The industry's Goliath

The largest defense contractor by revenue is Lockheed Martin, with more than $56 billion in annual sales. Lockheed Martin is also the prime contractor responsible for the F-35 Joint Strike Fighter, which is expected to generate more than $1 trillion in sales over the course of its life cycle and was recently behind the largest military procurement in world history.

An F-35 in flight.

The F-35A Joint Strike Fighter. Image source: Lockheed Martin.

Lockheed, however, is much more than just a one-hit wonder. It is a major producer of missiles and missile defense systems, has a dominant helicopter franchise, and has a broad catalog of space and airplane products.

Lockheed Martin is the manager of the famous Skunk Works research facility in California that has produced some of the most iconic military aircraft designs, including the U-2, the SR-71, and the F-35. These days, much of that R&D muscle is bent toward hypersonics, or missiles and aircraft traveling at more than five times the speed of sound. In that area, Lockheed Martin appears to be the leader.

General Dynamics: Too diversified for its own good?

General Dynamics has an impressive portfolio of defense products: It serves as the U.S.'s primary supplier of tanks and heavy land vehicles and also owns a number of shipyards where destroyers and nuclear-powered submarines are manufactured. But the company has been an underperformer in recent years for reasons that have nothing to do with defense.

GD is also the owner of Gulfstream, one of the world's largest manufacturers of business jets. That's a business that has failed to recover from the 2008-2009 recession, eating into results and making General Dynamics an underperformer relative to more defense-focused peers.

General Dynamics is also the rare defense prime that has been increasing its services business instead of selling out of it, in 2018 spending $9.6 billion to acquire CSRA. To date, these moves have not yet paid dividends for shareholders, but GD's tendency to move against conventional wisdom in the industry makes it one to watch among the contractors.

Northrop Grumman: A contractor in transition

Ever since spinning off its massive shipbuilding operation as an independent entity in 2011, Northrop Grumman has increasingly focused on the skies. The company's signature programs are its bombers, including the original stealth bomber and the forthcoming B-21. It also makes important subsystems for a number of other aircraft platforms.

Northrop is a leader in military radars and sensors and became a major force in space in 2018 when it bought Orbital ATK for $9.2 billion. It's still digesting that deal, and it has a relatively new CEO after Wes Bush surprised investors by stepping down not long after the Orbital deal closed.

Northrop's space and sensor portfolio should be lucrative, though much of it is highly classified and hard to fully value. The B-21 is an $80 billion program over its life span, and Northrop has shown an interest in reviving its fighter manufacturing expertise and competing for additional aircraft orders.

Northrop Grumman was almost sold in the late 1990s, with the deal eventually blocked by regulators as anticompetitive. The company seemed adrift for a while after that, unsure of how to navigate on its own. In recent years, Northrop Grumman has found a clear mission and is evolving into an air and space defense powerhouse.

Raytheon: A missile specialist about to get a lot bigger

Raytheon doesn't have a massive signature program like a bomber or a warship, but it makes the electronics and high-tech sensors that go into many of those systems. Its missile systems, including the Patriot defense batteries, are among the best in the world, and it provides sensors and other equipment to the intelligence community.

While still reliant on the Pentagon, Raytheon boasts a higher percentage of international revenue than any of the other primes, giving it a bit of diversification and some ability to weather Washington gridlock. It also has a large, if largely unproven, commercial cybersecurity business that could be an engine for growth in the future.

A Raytheon Patriot missile battery launches in the desert.

A Raytheon Patriot missile battery launch. Image source: Raytheon.

The Raytheon of tomorrow could look a lot different, as the company is attempting to execute the defense sector's first megamerger in nearly two decades. Raytheon's planned combination with the aerospace arm of United Technologies (NYSE:RTX) would create a defense and commercial aerospace giant with a pro forma market capitalization of about $120 billion and $75 billion in combined annual sales.

The deal would combine Raytheon's defense-focused business with United's commercial aerospace-heavy operation to create a more diversified supplier less reliant on either the Pentagon or any one commercial aircraft manufacturer. There is very little direct overlap in the portfolio, though there are areas for potential collaboration. For example, Raytheon could use research done by United's Pratt & Whitney engine operation to bolster its missile engine business.

Boeing: The under-the-radar defense giant

Boeing is best known for its commercial jet empire, and indeed defense makes up less than one-quarter of total sales. But that's still enough to place the company among the largest defense contractors.

As one might expect, much of Boeing's defense portfolio is aviation based. While Lockheed makes the current-generation fighters and Northrop won the deal for the new bomber, Boeing has an extensive portfolio of planes and helicopters in service, including the F/A-18 Super Hornet, the F-15 fighter, the Apache helicopter, and a number of surveillance and support aircraft.

It also manufactures several weapons, including serving as the lead on the Minuteman intercontinental ballistic missile, and is in the running for the eventual Minuteman replacement.

In recent years, Boeing has emerged as a leader in autonomous systems as well. It has numerous drone wins, including a new Navy tanker aircraft, and surprised markets when it unveiled a "wingman" concept: an unmanned drone designed to fly alongside piloted aircraft to provide greater firepower and to overwhelm enemy defenses.

The company is also spreading its wings beyond aviation, winning a bid to build an autonomous submarine for the Navy.

L3Harris Technologies: A new force

For the better part of a decade, L3 Technologies has been attempting to position itself as a sixth prime contractor, with only limited effect. That has changed with the company's blockbuster merger with Harris to create L3Harris Technologies. The new company is still smaller than the other primes, with about $16 billion in annual sales, but its vast portfolio of military electronics, communications, and sensors positions it to go head to head with the bigger companies.

Both L3 and Harris had been making progress on their own, pushing to increase the amount of business they do directly with the Pentagon instead of serving as subcontractors. Harris focused on battlefield management systems, aircraft communications, and classified space work, while L3 specialized in sensors, night-vision equipment, and unmanned technology.

Combined, more than 65% of sales come from prime contracts, with the rest from subcontracting work. Working together, the two companies should be able to open doors for each other and sell additional products to existing companies.

L3 and Harris have been two under-the-radar gems of the defense industry. Combined, L3Harris Technologies figures to eventually get the attention they deserve.

Huntington Ingalls: The king of shipbuilding

Huntington Ingalls is the rare specialist among defense giants. The company, carved out of Northrop Grumman in 2011, stands alongside General Dynamics as one of the two primary shipbuilders for the U.S. government.

The company is the owner of the massive shipyard in Newport News, Virginia, just across from one of the world's largest naval bases and birthplace of the U.S. Navy's fleet of nuclear-powered aircraft carriers and a range of other vessels.

Huntington Ingalls is the sole U.S. builder of carriers, at more than $10 billion apiece, and is a primary source for other nuclear-powered vessels including submarines. It also owns shipyards on the U.S. Gulf Coast that make surface combatants, amphibious assault ships, and U.S. Coast Guard national security cutters.

Aircraft carrier USS Gerald R. Ford steams in open waters.

The USS Gerald R. Ford, one of a long line of carriers born at Huntington Ingalls' Newport News facility. Image source: Huntington Ingalls.

Huntington Ingalls has traditionally traded at a discounted multiple to other defense primes, in part because of its reliance on one particular customer: the U.S. Navy. But the Navy has big growth plans, and Huntington Ingalls should be one of the primary beneficiaries of any effort to expand the fleet.

The Pentagon has also expressed concerns over the small number of shipyards and contractors capable of making advanced warships. That's a long-term risk to Huntington Ingalls if the government gets serious about investing to broaden the industry. But until that happens, the concern is evidence of how important Huntington Ingalls is to national security. If the Navy wants an aircraft carrier, it only has one place to turn.

Leidos Holdings: First mover in services

Leidos is the largest pure-play government services firm, formed out of a spinoff from SAIC in 2012 and expanded via a 2016 purchase of Lockheed Martin's IT business.

It's never wise to prioritize growing for the sake of size, but in the government services sector, scale is vitally important. These companies compete on price and speed. Larger organizations like Leidos can spread overhead costs over a bigger base, allowing them to run more efficiently, and have an expansive roster of employees holding hard-to-get security clearances and ready to take on new products as awards are handed out.

Leidos is best known for its defense and intelligence work, but it has also built a civil agency business focused on modernizing government IT systems and a health division working on securing medical data.

The U.S. trend toward lower taxes over the last few decades is putting pressure on agencies to be more efficient, in turn creating new outsourcing opportunities from departments ranging from Agriculture to Veterans Affairs. That's good news for Leidos' growth prospects.

Leidos is also dipping its toes into the equipment business. The company is working with the Navy on a 132-foot autonomous ship, supplying the brains and electronics while outsourcing manufacturing. It's hard to imagine Leidos or another services firm ever opening a shipyard, but as electronics and sensors grow in importance, there should be more opportunities for IT specialists to expand past their traditional roles.

Booz Allen Hamilton: Consultant to the security establishment

While Leidos -- and most of the government services sector -- has spent the last decade consolidating, Booz Allen Hamilton has largely gone it alone. That's unlikely to change, since the company tries to position itself as a hybrid consulting/IT business able to extract higher margins on work because of its ability to offer greater technical analysis than its rivals.

Booz Allen has had a rocky history, including being the employer of NSA leaker Edward Snowden and of Harold Thomas Martin III, who was accused in 2016 of theft of government property and the removal of classified documents. The company is a major vendor to the defense and intelligence communities, which at times can create bad headlines. But those clients also tend to be the sources of lucrative contracts, and Booz Allen has established itself as a vital cog in the U.S. national security establishment.

The company has also aggressively marketed its expertise to the private sector, offering cybersecurity products and services to the Fortune 500 and advising clients in the health and financial services industries. Booz Allen is also a go-to name in the growing area of private- and public-sector partnerships in transportation.

SAIC: Finding its footing

SAIC, short for Science Applications International Corporation, is one of the oldest names in the government services business, founded in the 1960s and originally conceived as a science shop working under government contract on nuclear power and weapons studies.

The company has expanded and evolved over time, spinning off Leidos in 2012 and bulking up within range of Booz Allen with its 2019 purchase of Engility. The Engility deal expanded its workforce with security clearance by about 50% and gave it expertise and access to a range of new intelligence and space opportunities.

SAIC has also tried to expand into equipment, but with only limited success. The company has spent most of the decade in the shadows of Leidos and Booz Allen, but with the Engility deal, it is attempting to break out and establish itself as more of a peer.

Expect the big to get bigger

Biggest doesn't always mean best, and simply buying the biggest names in the defense industry is no way to invest. But in an industry that requires massive specialized manufacturing skills, access to clearances, and strong relationships with government buyers, size does matter.

It's hard to imagine an upstart walking in and claiming a contract to design and manufacture the next fighter jet or aircraft carrier. It's difficult for even a commercial tech company to make inroads at the Pentagon, as Microsoft, Alphabet, and Amazon have discovered. So while investors should not buy solely based on size, they need to be aware of what it means when choosing between defense stocks.

The world isn't getting any safer, and the government's appetite for the products these companies sell is unlikely to dry up any time soon. The order of the rankings might change over time, but there is good reason to expect that today's list of the largest defense companies will look quite similar to a list made in a few years' time.