Middle East Ceasefire Eases Tensions, but Defense Stocks Stay in Focus – 2 Picks Analysts Like
After weeks of escalating tension, the U.S. and Iran have finally reached a ceasefire, easing fears of a broader regional conflict and giving markets a much-needed breather. Now, with hostilities paused, there is at least some clarity – even if the longer-term outlook remains uncertain.
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In the meantime, President Donald Trump has introduced a $1.5 trillion defense budget, a proposal that would push U.S. military spending to a record level if approved by Congress. The plan represents about 40% increase over the previous year’s Pentagon appropriation.
And while the ceasefire may cool immediate tensions, the spending trajectory is already in motion. Budgets of this scale don’t reverse overnight, and the need for military readiness, replenishment, and modernization typically extends well beyond active conflict periods.
That’s why aerospace and defense stocks remain firmly in focus. These companies supply the equipment, maintenance, and systems that militaries rely on in all environments, and periods of heightened geopolitical strain tend to reinforce long-term demand rather than diminish it.
As analyst Scott Mikus of Melius Research explains: “Assuming a $1.5T DoW budget is enacted, we expect the defense primes to benefit from several key program tailwinds, including full funding for Golden Dome, an increase in the B-21 program of record to 145 units from 100, and an expansion of the Columbia-class submarine program to 16 or 18 boats from 12, as well as substantial increases in other missile and shipbuilding programs.”
That backdrop sets the tone for the sector, and Wall Street analysts are pointing to names they believe could benefit. Using the TipRanks database, we’ve identified two such companies, both compelling options for investors looking to gain exposure to the defense space.
RTX Corporation (RTX)
The first stock we’ll look at here, RTX Corporation, is the modern incarnation of one of the US defense industry’s largest players, Raytheon. The company changed its name to RTX in July of 2023, as part of a reorganization that saw the company set up three business units. These include Pratt & Whitney, Collins Aerospace, and the eponymous Raytheon. Through these business units, the company manufactures a wide range of aerospace and defense products, including aircraft engines and avionics, guided missiles, air defense systems, satellites, and drones. In addition, the company is known for producing cybersecurity solutions.
A large part of RTX’s business and revenue comes from the US government, particularly from the Pentagon. The company boasts a market cap of $273 billion, making it one of the world’s largest military production contractors. RTX has been connected with some of the highest-profile military acquisition programs in the global defense industry, including the famous Tomahawk cruise missiles and Israel’s Iron Dome anti-missile system.
Recently, RTX announced several important new contracts. In conjunction with Elbit Systems of America, as Collins Elbit Vision Systems, the company, on March 31, announced that it had won a $581 million contract with the Pentagon to both produce and deliver the Lot 18-19 helmet-mounted display units for the Air Force, Navy, and Marines, with fulfillment of the contract expected by July of 2029.
Also at the end of March, RTX won a contract worth $3.8 billion to conduct modifications on lots 18 and 19 of the F135 jet engine – the powerplant unit for all three service variants of the F-35 stealth fighter. This contract is in addition to existing work that RTX is already contracted to perform on the F135 program; the total contract value of RTX’s work on this engine, through the Pratt & Whitney business segment, comes to $6.6 billion.
This defense giant has caught the attention of Melius analyst Scott Mikus, who sees the company’s overall mix of projects, and the high demand for its big-name military programs, as clear benefits. Mikus writes, “We think RTX’s balanced revenue mix (52% defense and 48% commercial aero) makes it an attractive way to play the generational investment upcycle in missiles and missile defense systems, while still maintaining exposure to the high-growth commercial aero end market. As the prime contractor for the Patriot/LTAMDS, NASAMS, Coyote, AMRAAM, Standard Missile family, and Tomahawk programs, international and domestic demand for Raytheon’s products is arguably insatiable… We estimate that ~18% of RTX’s sales are tied to missiles and missile defense programs. As multi-year agreements with the DoW are definitized, production volumes for some of RTX’s missiles are expected to double and, in some cases, quadruple. As a result, it’s reasonable to expect RTX’s missiles and missile defense revenues will grow at a high-teens to 20% CAGR through the end of the decade.”
Following from this, Mikus rates RTX as a Buy, with a $242 price target that implies a 19% upside potential for the coming year. (To watch Mikus’ track record, click here)
Wall Street gives this stock a Moderate Buy consensus rating, based on 15 recent reviews that include 11 Buys and 4 Holds. The stock is priced at $203.48. and its $225.17 average price target points to an 11% gain in the next 12 months. (See RTX stock forecast)
General Dynamics (GD)
Next up is an old name in the US defense industry. General Dynamics, which can trace its roots back to 1893 and the Holland Torpedo Boat Company, today produces some of the largest items in the US military inventory: main battle tanks, armored fighting vehicles, and nuclear-powered submarines. On the civilian side, GD is known as the manufacturer of the Gulfstream line of business jets.
Historically, General Dynamics has had close ties to the defense establishment. The company built some 80 US Navy submarines during World War Two, and in the post-war years it was instrumental in the development of the F-111 strike bomber. Currently, General Dynamics is the designer and builder of the F-16 fighter jet, one of the mainstays of the US Air Force.
General Dynamics operates through four divisions: Aerospace, Marine Systems, Combat Systems, and Technologies. These four units provide a balanced model through which the company develops platforms, their weapons, and the technologies that support them. General Dynamics has its hands in some of the highest-profile systems that the US military fields, including the Arleigh Burke-class destroyers of the Navy’s surface combat fleet.
In recent months, GD has enhanced its position as a major naval contractor. In January, the company scored a $988 million contract to modernize the Navy’s Control, Communications, Computers, Combat, Intelligence, Surveillance, and Reconnaissance systems, or C5ISR. GD will upgrade the systems, with the aim of improving the operational readiness and effectiveness of Naval forces.
Also this year, GD has won two major contracts with the Navy’s submarine programs. In the first, the company has a $15.38 billion modification contract for the support of the Columbia-class ballistic missile submarines. In the second, GD has won a $1.27 billion contract for design, development, and yard work involved with the Virginia-class attack submarine program.
For Wells Fargo analyst David Strauss, the company seems to be in better shape than it has been for a while. The 5-star analyst writes, “After a long run of negative earnings revisions, we see GD turning the corner with our 2026 estimate ahead of consensus. GD now stands to benefit from the multi-year refresh of its bizjet product lineup and an improving operating environment for shipbuilding along with strong international vehicle demand… GD has spent heavily over the last several years refreshing its entire bizjet offering, which has weighed on margins and FCF. It now has a newer and broader product portfolio than its competition. Aerospace margins have fallen to low teens while we see upside back to high teens…”
Strauss goes on to rate GD as Overweight (i.e., Buy), and he gives the stock a $400 price target that implies a ~14% gain over the one-year timeframe. (To watch Strauss’ track record, click here)
Like RTX above, General Dynamics holds a Moderate Buy consensus rating from the Street. This rating is based on 14 reviews that break down to 6 Buys and 8 Holds. The average price target of $398.25, and current trading price, of $350.02, together suggest a one-year upside potential of 14%. (See GD stock forecast)
Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
