This article looks at the 10 Best Small Cap Defense Stocks to Buy According to Hedge Funds.
On July 14, President Trump met NATO’s Secretary General, Mark Rutte, at the White House, where the two leaders announced plans to advance efforts to rearm Ukraine in its fight against Russia. Under the deal, the U.S. will supply weapons to be paid for by NATO allies. The weapons are expected to include the Patriot missiles, which Kyiv has urgently sought.
While large American defense contractors have had a quiet year so far, Wall Street analysts argue the situation may improve with the announcement to bolster military support for Ukraine.
Washington has repeatedly called for Europe to spend more on defense while stressing that it could no longer foot the bill. Last month, NATO leaders pledged to increase their defense spending to 5% of the GDP by 2035. This is a significant jump from the current target of 2% of GDP and is being seen as a major positive for the defense sector.
With that said, let’s now head over and discuss some of the best small-cap defense stocks to buy according to hedge funds.
A military cargo plane landing at its destination, signifying the strength of its defense arm.
Methodology
We used screeners to identify small-cap stocks in the defense industry, as of the close of business on July 14. From there, we selected the top 10 stocks with the number of hedge fund investors having a stake in them, based on Insider Monkey’s database of 1,000 prominent hedge funds as of Q1 2025, and ranked them in ascending order. Where two or more stocks were tied on hedge fund sentiment, we used market cap as a tiebreaker between them.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).
10 Best Small Cap Defense Stocks to Buy According to Hedge Funds:
10. Satellogic Inc. (NASDAQ:SATL)
Number of Hedge Fund Holders: 5
Satellogic Inc. (NASDAQ:SATL) is among the 10 Best Small Cap Defense Stocks to Buy According to Hedge Funds. On July 8, the company announced its inclusion in the U.S. small-cap Russell 3000 Index.
The company’s addition as a member of the index marks a significant milestone, aligning its presence in capital markets with the sustained growth and progress it is making in the Earth observation and satellite manufacturing industry. The inclusion is also expected to enhance Satellogic Inc. (NASDAQ:SATL)’s visibility among investors, which will help in increasing liquidity for its shares.
Emiliano Kargieman, CEO & Co-Founder of Satellogic Inc. (NASDAQ:SATL), stated the following on the development:
“We are incredibly honored to join the Russell 3000 Index. This inclusion is a testament to our team’s dedication, the robust performance of our scalable Earth Observation platform, and our commitment to delivering accessible and affordable insights to customers worldwide. We believe this will significantly increase our visibility among a broader base of institutional investors, supporting our continued growth and our mission to help solve some of the world’s most pressing challenges, from climate change to energy supply and national security. We look forward to this new chapter and the opportunities it presents for our shareholders.”
Satellogic Inc. (NASDAQ:SATL) is a vertically integrated geospatial analytics company that delivers real-time insights for consumers, governments, and industries worldwide. The stock has had impressive returns in 2025, gaining 30.53% year-to-date as of July 16.
9. TAT Technologies Ltd. (NASDAQ:TATT)
Number of Hedge Fund Holders: 9
TAT Technologies Ltd. (NASDAQ:TATT) is among the 10 Best Small Cap Defense Stocks to Buy According to Hedge Funds. The stock has gained nearly 20% year-to-date, as of the close of business on July 16. Recent analyst ratings project further upside potential for its shares.
On June 4, Truist Securities initiated coverage of TAT Technologies Ltd. (NASDAQ:TATT) with a Buy rating and announced a price target of $35 for the stock, with analysts viewing the company as a vital player in the commercial aerospace aftermarket component repair sector.
Later in the month, on June 11, analysts at Benchmark lifted the stock’s price target to $36 from $35, while maintaining a Buy rating for its shares. The adjustment followed impressive first-quarter results and a major APU contract with a leading international cargo carrier, which the firm described as a significant win.
On June 18, Lake Street also initiated coverage of TAT Technologies Ltd. (NASDAQ:TATT) with a Buy rating and a price target of $37 per share.
TAT Technologies Ltd. (NASDAQ:TATT) provides services and products for the commercial and military aerospace and ground defense sectors. Overall, Wall Street analysts have a consensus Buy rating for the stock, with a one-year average share price target of $35.50, representing an upside potential of 15.22%.
8. Smith & Wesson Brands, Inc. (NASDAQ:SWBI)
Number of Hedge Fund Holders: 14
Smith & Wesson Brands, Inc. (NASDAQ:SWBI) is among the 10 Best Small Cap Defense Stocks to Buy According to Hedge Funds. The company is a leading maker of long guns, handguns, rifles, and other shooting equipment.
SWBI’s shares are down 23% over the past month, with a major dip following the announcement of fourth quarter 2025 results on June 18. Net sales were reported at $140.8 million, down 11.6% year-over-year, while non-GAAP net income declined from $22.1 million in the prior year to $9 million this year. Gross margin stood at 28.8%, compared to 35.5% last year.
Smith & Wesson Brands, Inc. (NASDAQ:SWBI)’s President and CEO, Mark Smith, cited industry trends and macroeconomic challenges as the reasons behind a difficult quarter. However, the company was able to offset the bottom-line impact by leveraging its flexible manufacturing model and by ensuring disciplined cost management.
While the current market conditions suggest the headwinds are likely to persist in the near term, the management remains optimistic about Smith & Wesson Brands, Inc. (NASDAQ:SWBI) being well-positioned to succeed. New products continue to perform well, which has enabled the company to maintain its dominant position in the firearms market.
Following the results, analysts at Lake Street lowered Smith & Wesson Brands, Inc. (NASDAQ:SWBI)’s price target to $11 from $12.5, but maintained a Buy rating for its shares.
7. Cadre Holdings, Inc. (NYSE:CDRE)
Number of Hedge Fund Holders: 14
Cadre Holdings, Inc. (NYSE:CDRE) is among the 10 Best Small Cap Defense Stocks to Buy According to Hedge Funds. The company has delivered a strong start to the year, with first-quarter results exceeding expectations, with a 130 basis point expansion in gross margins being a major highlight.
The company’s net income was posted at $9.2 million, improving from $6.9 million during the comparable period last year. Despite net sales declining 6% during the quarter, Cadre Holdings, Inc. (NYSE:CDRE) anticipates full year net sales in the range of $618 million to $648 million, with the estimates including the impact from tariffs.
Cadre Holdings, Inc. (NYSE:CDRE) has also strengthened its position with the acquisition of Carr’s engineering division in April, which is expected to boost revenues and EBITDA during the year. The takeover also complements the company’s existing nuclear offerings and is expected to provide entry into new product categories and facilitate international expansion.
Despite the positive developments, the stock’s share price has remained largely stagnant this year, gaining just 1% year-to-date.
6. Byrna Technologies Inc. (NASDAQ:BYRN)
Number of Hedge Fund Holders: 15
Byrna Technologies Inc. (NASDAQ:BYRN) is among the 10 Best Small Cap Defense Stocks to Buy According to Hedge Funds. The company manufactures less-lethal equipment and munitions for personal security, private security firms, and law enforcement agencies.
In March of this year, the firm announced the opening of its ammunition manufacturing facility in the United States, located in Fort Wayne, Indiana, just five miles from its launcher production facility. The expansion has advanced Byrna Technologies Inc. (NASDAQ:BYRN)’s transition to domestic manufacturing. It also positions the company well to meet growing demand, given the facility’s capacity to produce 8 million rounds of its proprietary less-lethal ammunition per annum.
On July 10, Byrna Technologies Inc. (NASDAQ:BYRN) announced strong results for the second quarter of fiscal 2025, with revenue climbing 41% year-over-year to a record $28.5 million, driven by the launch of the new Compact Launcher (CL), broader brand adoption, and increased dealer and chain store sales. Net income was posted at $2.4 million, up 14% from the prior year’s period.
Despite the robust results, Byrna Technologies Inc. (NASDAQ:BYRN)’s shares plunged by 29% in the five days following the earnings call. The significant dip suggests a ‘sell the news’ reaction from investors, who sold the stock, believing that the results may have been priced into its share price.
Byrna Technologies Inc. (NASDAQ:BYRN)’s shares have been volatile in 2025. While the stock is down 20% YTD, it had an impressive run between April and July, nearly doubling during the period.
5. Ducommun Incorporated (NYSE:DCO)
Number of Hedge Fund Holders: 15
Ducommun Incorporated (NYSE:DCO) is among the 10 Best Small Cap Defense Stocks to Buy According to Hedge Funds. On July 3, RBC Capital lifted its price target for the stock to $95 from $72, while maintaining an Outperform rating for its shares.
Analysts believe the company’s engineered products portfolio is a high-margin business, with the potential to drive significant earnings growth. Ducommun Incorporated (NYSE:DCO)’s shares have gained 36% year-to-date, which the firm attributed to strong commercial original equipment sentiment and an encouraging outlook for Boeing’s production ramp.
Moreover, RBC Capital sees continued value exposure for the stock in the small-cap defense sector, with the outlook being shaped by expected growth in fiscal 2026 defense spending.
Overall, Wall Street analysts remain bullish on the stock with a consensus Buy rating. Ducommun Incorporated (NYSE:DCO) provides manufacturing solutions to customers in the global aerospace, defense, military, space, and industrial markets.
4. Sturm, Ruger & Company, Inc. (NYSE:RGR)
Number of Hedge Fund Holders: 20
Sturm, Ruger & Company, Inc. (NYSE:RGR) is among the 10 Best Small Cap Defense Stocks to Buy According to Hedge Funds. Earlier this month, the company announced the asset purchase of Anderson Manufacturing, a firearms manufacturer, based in Hebron, Kentucky.
The strategic acquisition will include the takeover of Anderson’s manufacturing facility and equipment, providing Sturm, Ruger & Company, Inc. (NYSE:RGR) with an opportunity to strengthen its production and expand its product offerings.
Todd Seyfert, President and CEO of Sturm, Ruger & Company, Inc. (NYSE:RGR), stated the following on the acquisition:
“This acquisition is an incredible opportunity to advance our long-term strategy and expand Ruger’s capacity. We’re excited to welcome members from the talented team at Anderson Manufacturing and leverage their knowledge and infrastructure to better serve our customers. This move reinforces Ruger’s position as a leader in the industry, and reiterates my focus on continued growth, even as others scale back.”
According to the press release dated July 1, Sturm, Ruger & Company, Inc. (NYSE:RGR) will not continue the Anderson brand or its products. Instead, it will integrate the facility into its own wider operations.
Sturm, Ruger & Company, Inc. (NYSE:RGR) is an American firearms company with a diverse portfolio of products, mainly serving three product lines – pistols, rifles, and revolvers.
3. Planet Labs PBC (NYSE:PL)
Number of Hedge Fund Holders: 23
Planet Labs PBC (NYSE:PL) is among the 10 Best Small Cap Defense Stocks to Buy According to Hedge Funds. The company has received four major contract awards from customers in the Defense and Intelligence sector for its new AI-enabled solutions, building on the momentum discussed in its latest earnings call in June.
These contracts will support government clients in the United States and internationally through improved situational awareness and informed decision-making. The business wins underscore the rising demand for Planet Labs PBC (NYSE:PL)’s national security offerings, which use proprietary satellite data and advanced AI capabilities.
The recent agreements include a multi-year, €240 million contract from Germany to support European peace and security; an expansion of Planet Labs PBC (NYSE:PL)’s existing HSA contract with the Defense Innovation Unit (DIU) in support of INDOPACOM; a seven-figure deal with the U.S. Navy for maritime domain awareness in the Pacific Ocean region; and another seven-figure contract from NATO for space-based surveillance, maritime domain awareness functions, and enhanced indications and warnings.
Planet Labs PBC (NYSE:PL) provides global daily satellite imagery and geospatial solutions. The stock has had impressive returns in 2025, gaining 59% year-to-date as of July 15.
2. V2X, Inc. (NYSE:VVX)
Number of Hedge Fund Holders: 25
V2X, Inc. (NYSE:VVX) is among the 10 Best Small Cap Defense Stocks to Buy According to Hedge Funds. On June 30, the company announced that it had received a new foreign military sales contract to support Iraq’s F-16 program.
The initial contract is valued at $118 million to support an immediate start with full definitization before the end of the ongoing calendar year. The full period of the contract is expected to be five years. Work includes comprehensive base operations and life support services, among other operations.
Ken Shreves, Senior Vice President of Mission Support at V2X, Inc. (NYSE:VVX) stated the following at the award:
“We are honored to have been selected to deliver this critical strategic capability to the Iraqi Air Force in this high-stakes environment.”
Jeremy C. Wensinger, President and CEO, added:
“This award reflects our ability to leverage a broad portfolio of capabilities and our global footprint into larger and more strategic opportunities. Foreign military sales and international markets represent a significant and growing area of opportunity for V2X.”
V2X, Inc. (NYSE:VVX) is a leading provider of critical mission solutions and support services to defense clients in over 50 countries and territories.
1. Astronics Corporation (NASDAQ:ATRO)
Number of Hedge Fund Holders: 37
Astronics Corporation (NASDAQ:ATRO) is among the 10 Best Small Cap Defense Stocks to Buy According to Hedge Funds. On July 8, the company announced the acquisition of Envoy Aerospace, a provider of FAA Organization Designation Authorization (ODA) services, for approximately $8 million.
The strategic acquisition is expected to strengthen Astronics Corporation’s (NASDAQ:ATRO) capabilities in aircraft connectivity, cabin modifications, and in-seat power. The FAA ODA will also streamline the process for the company to obtain FAA Supplemental Type Certificates (STCs) and Parts Manufacturer Approvals (PMAs) for its products and services.
This added expertise augurs well for Astronics Corporation (NASDAQ:ATRO) amid strong demand for aircraft modifications related to cabin reconfigurations, connectivity, and lease returns, especially given the limited availability of ODA services.
Mike Kuehn, President of Astronics Connectivity Systems and Certifications (CSC), stated the following on the acquisition:
“Envoy Aerospace’s extensive experience and trusted reputation as an ODA make them a perfect fit for Astronics, supporting our strategic thrust for Inflight Entertainment and Connectivity. This will enable dedicated access to ODA services for our collective Astronics and Envoy customers to obtain FAA STCs and PMAs for our products.”
Astronics Corporation (NASDAQ:ATRO) provides advanced technologies to global aerospace, defense, and electronics clients. Some of its offerings include lighting and safety systems, aircraft electronics integration, automated test systems, and distribution and motion systems. The stock has surged 121% YTD, as of the close of business on July 15.
While we acknowledge the potential of ATRO to grow, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and have limited downside risk. If you are looking for an AI stock that is more promising than ATRO and that has 100x upside potential, check out our report about this cheapest AI stock.
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