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.

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%.