9 Best Defense Stocks to Buy According to Hedge Funds

Defense stocks have lagged the broad market index in 2026, but experts continue to see promise in the sector ahead.

7. Woodward, Inc. (NASDAQ:WWD)

Number of Hedge Fund Holders: 74

Woodward, Inc. (NASDAQ:WWD) is next on our list of the best defense stocks to buy according to hedge funds. As of Q2 2026, 74 hedge funds held a stake in the company.

It is hard to argue against the firm’s growth story. It serves two strong markets. The Aerospace segment benefits from robust aftermarket services demand as airlines keep flying their planes longer. Defense demand also remains strong. On the Industrial side, data center requirements continue to drive demand for power generation and backup power.

Net sales increased 21% YoY for the third quarter ended June 30 to $1.1 billion. Margins expanded across both segments. Adjusted EPS came in at $2.52, increasing 43% from the prior year’s period, and surpassing Wall Street’s estimates. Free cash flow over a 9-month period stood at $196 million, up 23% from the prior year despite higher capital expenditures.

Woodward, Inc. has a trailing P/E ratio of 33.82 and forward P/E ratio of 29.46. The gap suggests that analysts expect the company’s earnings to rise by roughly 13% over the next 12 months.

Compared to peers, Woodward’s trailing P/E is 33.82 against 21.12, while its forward earnings multiple is 29.46 versus 19.71. Investors are paying a big premium, given the figures for both metrics. However, this will only be justified if further growth arrives.

Read Next: Woodward (WWD) Plans a Factory Move and Asset Sale. Can Aerospace Profits Improve?

6. Honeywell Aerospace Inc. (NASDAQ:HONA)

Number of Hedge Fund Holders: 74

Honeywell Aerospace Inc. (NASDAQ:HONA) completed its spin off from Honeywell Technologies and began trading independently on Nasdaq under the ‘HONA’ ticker in June this year. With 74 hedge funds holding a stake in the company as of the end of Q2, it is among the best defense stocks to buy according to hedge funds.

There are several factors drawing interest from institutional investors. One of which is the pure-play aerospace exposure, which will offer increased focus towards commercial and business aviation, defense, and space.

Broyhill Asset Management, in its Q3 2026 investor letter, stated that Aerospace had long been the crown jewel of Honeywell. The firm thinks there is a strong case to own more of the stock, as its parts are designed into aircraft platforms for the next 3-5 decades, which will provide the company an entrenched position in supply chain, high ROIC, and significant free cash flow generation.

Honeywell Aerospace Inc. ended the second quarter of fiscal 2026 with a backlog of $18.2 billion, providing revenue visibility for the quarters ahead. This was a 9% YoY increase, with media reports citing record orders from both Boeing and Airbus.

Read Next: Honeywell Aerospace’s (HONA) Valuation Tells Only Part of the Story for Jim Cramer

5. Lockheed Martin Corporation (NYSE:LMT)

Number of Hedge Fund Holders: 75

Lockheed Martin Corporation (NYSE:LMT) remains a widely held stock among hedge funds, despite interest cooling slightly, with funds holding a stake in the company falling from 83 in Q1 to 75 at the end of the second quarter. The caution from institutional investors was understandable. Q1 results disappointed investors and F-35 deliveries are down this year.

That said, business fundamentals remain strong. Following the improved financial performance during the second quarter, the defense contractor recently reported solid results for the third quarter as well.

The company reported net sales of $20.7 billion for the quarter, up 11% year-over-year, and beating estimates of $20.51 billion. The gain was attributed to growth in its Aeronautics and Missiles and Fire Control segments. Net earnings increased 14% from the prior year $7.97 per share and were also above expectations of $7.43 per share.

Lockheed Martin Corporation said it was lifting guidance for annual sales and earnings, as ongoing geopolitical conflicts continue to drive robust demand for its defense systems.

On the same day, the defense contractor announced that it had secured a 10-year agreement with the Pentagon, valued at nearly $78 billion, for at least 850 stealthy ‌F-35 Lightning II fighter jets.

Don’t Miss: Can Lockheed Martin (LMT)’s Backlog Keep Growing at this Pace?

4. TransDigm Group Incorporated (NYSE:TDG)

Number of Hedge Fund Holders: 83

According to Insider Monkey’s database for Q2, 83 hedge funds held a stake in TransDigm Group Incorporated (NYSE:TDG), with the count going slightly down from 87 in Q1. Could the stock’s negative book value be a reason?

Soroban Capital Partners climbed a place to become the largest investor in the company with holdings of approximately $1.19 billion after increasing its stake by 21% during the quarter.

AltaRock Partners dropped down to second with shares worth $1.17 billion, while Windacre Partnership retained third place with an investment value of $911 million in the company.

Despite the small dip in hedge fund holdings, TGD remains a top pick in the sector for institutional investors. The company’s latest earnings report shows why.

Net sales in Q3 grew 23% YoY to $2.74 billion. Adjusted EPS came in at $10.87, up 13% from the prior year. EBITDA As Defined was reported at nearly $1.45 billion, increasing 19%. EBITDA As Defined margin stood at 52.8%.

TransDigm Group Incorporated credited the robust results to growth in Commercial Aftermarket, Commercial OEM, and Defense. Following the results, the management lifted guidance for the full-year and added that it anticipates the momentum to continue. You can read the full report here.

Read Also: TransDigm (TDG): Strong Growth Meets a Tougher M&A and Valuation Debate