I’ve been investing through a lot of wars. The Gulf War in 1991. Iraq in 2003. Russia-Ukraine starting in 2022. Every single time, the same pattern plays out: investors underestimate how long conflicts last, and they underestimate how much money flows into defense as a result.
The Iran war has been running since February. The Strait of Hormuz is largely closed. U.S. direct war costs have already exceeded $25 billion according to congressional testimony, with internal estimates running $40 to $50 billion. This week, President Trump returned from a two-day summit in Beijing — and despite the “very successful” framing, Wall Street saw through it: no tariff deal, no trade breakthroughs, ongoing tensions. Stocks sold off globally.
Add the Tuesday inflation report — 3.8% annual, driven significantly by energy prices the Iran conflict is inflating — and the picture is clear. This isn’t a short-term story. And defense companies aren’t just war plays. They’re geopolitical hedges for the kind of world we’re actually living in.
Here are three I’m watching.
Lockheed Martin (LMT)
Lockheed is the most straightforward of the three. The F-35 is the backbone of U.S. air power and is flying in active combat operations. The company has $186 billion in backlog — that’s years of contracted revenue sitting on the books regardless of what happens with appropriations.
What most investors don’t appreciate is the foreign military sales angle. The Iran war has triggered a surge of arms purchases from Gulf allies. Saudi Arabia, Kuwait, and the UAE are collectively looking at over $21 billion in new U.S. equipment purchases. Lockheed and RTX (see below) are the primary beneficiaries. Those contracts are already in the pipeline.
The stock trades around $520 with analyst consensus targets near $602 — roughly 15% upside to the average 12-month view. It pays a dividend of about 3%. For a company with that backlog and those tailwinds, the valuation isn’t stretched.
Northrop Grumman (NOC)
Northrop is the longer-duration bet. They build the B-21 Raider bomber, the Sentinel intercontinental ballistic missile replacement program, and they’re a core contractor on the Ground Based Strategic Deterrent — the backbone of U.S. nuclear modernization.
These aren’t programs that get cut when budgets tighten. They get prioritized. The Pentagon’s relationship with China is not improving regardless of what any summit signals. Nuclear modernization is a 30-year spending commitment, and Northrop is one of only two or three companies in the country that can do it.
The stock trades around $549. Analyst consensus puts the 12-month target near $709 — that’s about 29% upside if they’re right. It’s the most aggressive upside case of the three, but it’s also backed by the most durable long-term contracts.
RTX Corporation (RTX)
RTX is the one most people know as Raytheon. They make the Patriot missile system — which has been deployed heavily in the Iran theater — plus Tomahawk cruise missiles, Javelin anti-tank systems, and a range of other munitions that are being used or restocked right now.
What I find interesting about RTX is that it’s not a pure defense play. About half the company is commercial aerospace through Pratt & Whitney (jet engines) and Collins Aerospace (avionics). That diversification means it doesn’t swing as wildly on geopolitical news, but it also means you get a more stable, cash-generating business underneath the defense exposure.
Q1 revenue came in at $22 billion, up 9% from a year ago. The company has an ex-dividend date coming up on May 22, so buyers before that date lock in the next payment. The stock is around $176.
The Honest Risk
Peace breaks out and demand softens — that’s the obvious downside. But even in that scenario, these companies have multiyear backlogs that don’t evaporate overnight. The structural argument for defense spending isn’t going away: U.S. military readiness after years of drawdown, NATO commitments, China competition, and now the lesson being drawn from the Iran conflict about munitions stockpiles.
I’m not calling any of these stocks cheap on traditional valuation metrics. But I’m also not pretending the world is getting safer. These are companies that do well when it isn’t.
