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.
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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.
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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
3. The Boeing Company (NYSE:BA)
Number of Hedge Fund Holders: 90
The Boeing Company (NYSE:BA) remains one of the widely held defense stocks among hedge funds. This is despite the count dropping from 99 at the end of the first quarter to 90 in Q2. Recovery potential and scale remain the main attraction for institutional investors in the stock.
Total backlog grew to a record $745 billion at the end of the third quarter. During the earnings call, the company also announced that the 737-7 and 737-10 variants were now certified. The aircraft maker also said that the 737 program was on track towards stable production of 47 per month.
Revenue at The Boeing Company’s defense unit grew 15% year-over-year to $7.9 billion, driven by higher volume. Operating margin came in at 6.2%, up from 1.7% in the prior year’s period. Segment backlog reached a record $101 billion, with nearly one-fourths of the orders from customers outside the United States.
A major catalyst for the unit was a Navy contract to build the F/A-XX next-generation fighter aircraft. However, that is not included in the backlog yet as the order awaits the source selection and evaluation review process. During the quarter, the company also secured a 7-year deal to increase PAC-3 Seeker production.
That said, caution is still warranted. The company has a lot of work to do on delivering on its backlog and improving fundamentals. Shares are down 6% since October 27 after Boeing reported a net loss of 34 cents per share for Q3, compared to Wall Street’s estimates of a loss of 21 cents.
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2. RTX Corporation (NYSE:RTX)
Number of Hedge Fund Holders: 92
RTX Corporation (NYSE:RTX) continues to be among the top defense picks for hedge funds. As of Q2 2026, 92 hedge funds held a stake in the stock, down slightly from 95 in Q1.
Despite the dip in hedge fund count, the overall appeal remains high due to the company’s dual exposure to commercial aerospace and defense. Third quarter revenue climbed 11% YoY to $25 billion, beating estimates of $24.08 billion. Adjusted EPS came in at $2.26, up 33% from the prior year and above analysts’ expectations of $1.78 per share.
Following the results, RTX Corporation lifted its full-year forecast for revenue and profit, amid a sustained demand for military programs and commercial aerospace services, which have also pushed its backlog to a record $340 billion. You can read the revised guidance here.
The company received $81 billion worth of new orders during Q3, which included standout defense awards, such as a $20.7 billion contract for AMRAAM missiles in late September and a $22.9 billion contract awarded in August for Tomahawk cruise missiles.
That said, some caveats do apply. The adjusted EPS of $2.26 in Q3 included $0.25 of IEEPA recovery and free cash flow declined 47% during the quarter.
Don’t Miss: RTX (RTX): How Much of its Cash Recovery Comes From Selling Receivables?
1. GE Aerospace (NYSE:GE)
Number of Hedge Fund Holders: 113
GE Aerospace (NYSE:GE) is a global aerospace propulsion, services, and systems company with an installed base of around 30,000 military and 50,000 commercial aircraft engines. Investors are drawn towards the company’s installed base of engines, which are a source of long-running service revenue.
According to Insider Monkey’s database for Q2, 113 hedge funds held a stake in the company. While this a slight decline from 119 in Q1, GE is the most popular aerospace and defense name among institutional investors. It was also recently listed among the best dividend stocks in the sector.
Total adjusted revenue in Q3 came in at $13.3 billion, up 18% from the prior year. Total orders during the quarter grew 49% to $19 billion. Adjusted EPS stood at $2.25 per share, beating Wall Street’s estimates by 24 cents and increasing 36% YoY.
Following the results, GE Aerospace lifted its full-year guidance across the board. This was the second such instance this year of the company raising profit forecasts, amid a surge in demand for aircraft engine repairs and spare parts.
The defense angle further adds durability for the stock. Revenue at the Defense & Propulsion Technologies (DPT) segment grew 7% from last year to $3.5 billion, while orders were up 18% to $4.3 billion for the quarter. For 2026, DPT’s revenue growth is anticipated in the low double digits, with operating profit expected around $1.6-$1.7 billion.
While we acknowledge the risk and potential of GE as an investment, we believe certain AI infrastructure stocks offer far stronger long-term potential at a much more attractive entry point. If you are looking for an AI stock more promising than ACN that operates as a critical AI tollbooth and stands as the most important company in the world, check out our report about this must-own AI stock.
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This article is originally published at Insider Monkey.
