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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.

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This article looks at the 9 Best Defense Stocks to Buy According to Hedge Funds.

Despite ongoing geopolitical conflicts and rising military expenditure across the world, U.S. defense stocks have largely struggled in 2026. The NYSE Arca Defense Index is up just 2.76% year-to-date, as of October 29, and is trailing the S&P 500 which has gained 12.57% during the period.

Check out our list of the 10 Best Aerospace Dividend Stocks to Buy.

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Experts attribute much of the stagnant run to budget uncertainty, which has weighed in on investor sentiment. Other factors include shifting warfare technologies, and concerns regarding overstretched valuations of companies in the sector after years of conflict.

On September 23, Bernstein analyst Douglas Harned said that investors should hold off on buying the selloff until the November 3 midterm elections are over. The firm views the elections as a potential clearing event that will bring more clarity about the budgets.

Harned dismissed concerns about a Democratic victory adversely impacting defense spending. The analyst said that historical trends did not support the fears and that he anticipates the 2027 investment budget to rise more than 10%.

While talking to Schwab Network last month, Brand Clark, the Director of Financial Planning at The Clark Group Asset Management, said that they view defense as more than a short-term trade. The sector remains a strategic part of their portfolio.

Clark said that even if the Iran war ends, defense spending will not simmer down. Money will continue to go into restoring inventories and building deeper stockpiles, especially given the long-term threats from countries like China and North Korea.

With that said, let’s head over to the list of the best defense stocks to buy according to hedge funds.

Methodology

We used screeners to identify defense stocks that trade on American exchanges. From there, we selected the top 9 companies that had the highest number of hedge fund investors having a stake in them, based on Insider Monkey’s database of prominent hedge funds as of Q2 2026. Finally, we ranked them in ascending order based on the number of hedge funds holding positions. Where two or more stocks were tied on hedge fund sentiment, we used market cap as a tiebreaker between them. All figures are as of the close on October 29.

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. Insider Monkey’s quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 599.2% since May 2014, beating its benchmark by 372 percentage points (see more details here).

9 Best Defense Stocks to Buy According to Hedge Funds:

9. Northrop Grumman Corporation (NYSE:NOC)

Number of Hedge Fund Holders: 59

Northrop Grumman Corporation (NYSE:NOC) is one of the world’s largest defense contractors. It is engaged in the design, development, integration, and maintenance of advanced systems across aeronautics, space, defense electronics, and mission solutions.

According to Insider Monkey’s database for Q2 2026, 59 hedge funds held a stake in the stock. The strong interest from institutional investors is backed by solid business fundamentals.

On October 20, the company reported results for the third quarter of fiscal 2026. Sales increased 7% year-over-year to $11.1 billion. This growth was attributed to a 14% increase in sales in its Aeronautic Systems unit, which benefited from higher B-21 sales and F-35 production.

The defense contractor secured $16.4 billion in new contracts during the quarter, taking its total backlog to a record $110 billion. NOC’s diluted EPS came in at $7.89, comfortably surpassing Wall Street’s estimates.

Following the results, the company raised its annual profit forecast in the range of $29.35 to $29.75, up from earlier projections of between $28.60 and $29.10.

Much of the Northrop Grumman Corporation’s growth is anchored in flagship defense programs. The hedge fund interest is investors betting that the execution on these programs will continue.

The stock’s valuation is another factor that has caught investors’ attention. NOC trades at a forward price-to-earnings ratio of 18.21, which is both below the sector median of 19.71 and its own 5-year average 19.72, implying that it is moderately undervalued.

Read More: Northrop Grumman (NOC): Is This Dividend Stock Trading at a Discount?

8. General Dynamics Corporation (NYSE:GD)

Number of Hedge Fund Holders: 62

General Dynamics Corporation (NYSE:GD) is another stock that remains a hedge fund favorite among large-cap defense stocks. At the close of Q2, 62 hedge funds held a stake in the company, remaining unchanged from the first quarter.

Longview Asset Management is the largest stakeholder in the defense contractor, with holdings of nearly $9.6 billion as of June 30. The firm increased its stake by 3% during the second quarter.

AQR Capital Management and D E Shaw retained their second and third spots, with investments valued at $742 million and $440 million, respectively.

The steady sentiment is backed by strength in General Dynamics Corporation’s Gulfstream business jet and rising global defense spending, which has resulted in increased revenue, raised profit outlook, and a growing backlog of orders.

The defense contractor has beaten Wall Street’s earnings estimates for the past six successive quarters now (Q1 2025 to Q2 2026).

Despite that, shares are up just over 8% YTD as of the close on October 27 amid concerns over lighter projections for the second half of 2026, with increased capital expenditures, pension payments, and higher taxes likely to weigh in on results ahead.

Don’t Miss: General Dynamics (GD): Is This Aerospace Dividend Stock Undervalued?

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