Best Defense Stocks in 2025... So Far

Key Points

• Lockheed Martin is well-positioned for future wars and is trading at an attractive valuation.
• Northrop Grumman is another attractively valued defense stock with a record $91.5 billion backlog.
• Axon Enterprise is richly valued, but analysts continue to raise their price targets.

Some investors downplay the link between politics and investing, and sometimes Capitol Hill events have little impact. But if it were all irrelevant, why would so many members of Congress trade stocks based on the information they receive?

Reality shows that sometimes our nation’s leaders leave promising investment opportunities hiding in plain sight. For example, in March, Congress passed a continuing resolution (CR) to fund the government through the end of fiscal year 2025. Not only does this prevent a government shutdown, but it also highlights the new Congress’s evolving priorities, helping investors spot key opportunities.

One area standing out so far in 2025 is defense spending. Many defense stocks had been under pressure earlier this year over concerns about possible defense budget cuts as part of the Department of Government Efficiency (DOGE) initiative. However, the latest CR secured an additional $9 billion for the Department of Defense (DoD), emphasizing modernization and new technologies.

That means it’s time for investors to take a closer look at some of the best defense stocks of 2025—so far.

1. Lockheed Martin: One of the Best Defense Stocks at a Discount

Lockheed Martin Corp. NYSE: LMT is one of the largest defense contractors in the world. The company is coming off another record revenue year in 2024 and is already seeing solid momentum in 2025. Yet, the stock remains down more than 15% from its October 2024 highs.

Some contrarians argue that LMT stock may lose appeal if a potential peace dividend emerges from a reduced U.S. military footprint abroad. However, at a time when modernization is a national priority, defense spending is not expected to slow down. Lockheed’s focus areas—AI, space defense, and cybersecurity—align with these future needs.

Plus, investors are getting LMT stock at an attractive price-to-earnings (P/E) ratio of around 21x earnings and approximately 17x forward earnings, offering an attractive discount compared to the average aerospace and defense P/E ratio of around 25x.

2. Northrop Grumman: Backlog Gives Investors Peace of Mind

Northrop Grumman Corp. NYSE: NOC wrapped up 2024 with revenue topping $41 billion. Although the stock is down roughly 7% over the past six months, Northrop’s story is about long-term stability.

It is important to note that Northrop was awarded over $50 billion in new contracts in 2024, building a record backlog now exceeding $94 billion.

One of the company’s headline projects, the B-21 Raider stealth bomber for the U.S. Air Force, remains on track with production ramping up in 2025. With no significant cuts looming in the defense budget and European allies also expanding their military investments, Northrop’s massive backlog offers long-term security.

And like Lockheed, NOC stock trades at attractive valuations, with both its current and forward P/E ratios hovering around 17x.

3. Axon: Law Enforcement and Government Contracts Drive Long-Term Growth

Axon Enterprise Inc. NASDAQ: AXON is a leading provider of technology solutions such as less-lethal weapons (e.g., tasers), body cameras, and cloud-based software. Although primarily used by law enforcement personnel, Axon does have contracts with the U.S. government, including the U.S. Border Patrol.

One intriguing statistic about Axon is how rapidly analysts are raising their price targets. One of the best defense stocks, AXON has been up more than 95% in the last 12 months. However, 12 months ago, that price was just over $300 and was about 3% above consensus.

While pricey by traditional valuation measures, Axon’s growth trajectory and expanding government reach make it a stock to watch in 2025—and beyond.