We recently published a list of the 10 Best Mid Cap Defense Stocks to Buy According to Analysts. In this article, we will take a look at where Embraer S.A. (NYSE:ERJ) stands against other best mid cap defense stocks.
Defense stocks have surged over the past week after President Trump unveiled plans for a $1 trillion defense budget for fiscal 2026, representing a 12% increase from the current year. Here is what he told reporters on April 7:
“Nobody’s seen anything like it. We have to build our military and we’re very cost-conscious, but the military is something that we have to build. And we have to be strong because you’ve got a lot of bad forces out there now. So we’re going to be approving a budget and I’m proud to say actually, the biggest one we’ve ever done for the military.”
READ ALSO: 10 Best Performing Defense Stocks So Far in 2025 and 10 Best Large Cap Defense Stocks to Buy Now.
This is an encouraging development for America’s defense sector, which had a subdued start to the year due to uncertainty around budget cuts. The creation of DOGE had also reshaped investors’ views of the industry.
Stocks got another boost last week after market chatter that tariff negotiations to address trade imbalances could include commitments from foreign countries to buy weapons from the US. On April 7, Vietnam’s prime minister issued a statement, asking for a 45-day delay in the imposition of tariffs and stating his country would buy more American goods, including arms, to tackle the trade gap.
Defense stocks have soared in Europe this year, as regional capitals unlocked billions to supercharge their militaries. While a steep selloff in response to the tariffs sparked a major plunge in shares last week, this has been a year to remember for several European defense companies that have seen double-digit returns so far in 2025.
Analysts at Citi believe defense stocks are poised for outperformance due to minimal tariff exposure, increased military budgets, and rising geopolitical tensions. Jason Gursky stated the following in a detailed preview to clients on April 10:
“We materially change the rank order of our stock picks, moving our defense coverage to the top of the list given our positive view on the outlook for global defense spending.”
Investors are also buoyed by the unveiling of a new next-generation fighter jet, the F-47, to replace the F-22 Raptor. President Trump has also announced that he will resurrect America’s military and commercial shipbuilding industry, which he sees as vital to national security, given the strategic competition with China.
An engineer examining a detailed blueprint of an aircraft.
Methodology
For this article, we sifted through screeners to identify mid-cap stocks in the aerospace and defense industry. These stocks have a market cap between $2 billion and $10 billion. From there, we picked the top 10 defense stocks with the highest positive share price upside potential. All data is as of the close of business on Friday, April 11, 2025.
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).
Embraer S.A. (NYSE:ERJ)
Market Cap: $7.69 billion
Share Price Upside Potential: 7.72%
Embraer S.A. (NYSE:ERJ) is a Brazilian jet manufacturer that produces aircraft for commercial, executive, and defense purposes.
The company’s shares have slumped 19% over the past month, with a major dip after Wolfe Research downgraded the stock to Peer Perform from Outperform on March 24, citing tariff risks. Despite the recent fall, Embraer S.A. (NYSE:ERJ) is one of the best mid cap stocks so far in 2025, with year-to-date gains of 13.5%, on the back of robust financial results for fiscal 2024 and several recent high-value contract awards.
In February, the company received a $7 billion order from Flexjet for 182 aircraft and 30 options. This is the largest firm order for both companies and will double the size of Flexjet’s fleet over the next five years. During the month, Japan’s ANA Holdings also ordered 15 E190-E2 planes to support its domestic operations. The deliveries are expected to commence in 2028.
On April 3, Embraer S.A. (NYSE:ERJ) signed an MoU with the South African aerospace and defense company, Denel, for potential future collaboration on the KC-390 Millennium, focused on aerostructure manufacture, repair, maintenance, and overhaul activities. This is a significant strategic partnership as the country looks to replace its legacy military aircraft.
According to a report on Reuters, the company is considering establishing an assembly line for its KC-390 military cargo aircraft in Poland due to a surge in plane sales in Europe. Moreover, the Portuguese Air Force recently joined Embraer S.A. (NYSE:ERJ) and the Brazilian Air Force in collaborative studies to provide the KC-390 Millennium with ISR capabilities.
Overall, ERJ ranks 9th among the 10 best mid cap defense stocks to buy according to analysts. While we acknowledge the potential of defense companies, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. There is an AI stock that went up since the beginning of 2025, while popular AI stocks lost around 25%. If you are looking for an AI stock that is more promising than ERJ but that trades at less than 5 times its earnings, check out our report about this cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
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