Defense Stocks to Buy 2026: Backlogs Hit Record $194B
The 2026 defense landscape is defined by a $1 trillion U.S. budget and surging backlogs at firms like Lockheed Martin, as global conflicts drive demand for aerospace and missile defense systems.
The global aerospace and defense sector has entered a period of unprecedented fiscal expansion, driven by the US defense budget increase impact which reached a record $1 trillion for the 2026 fiscal year. This budgetary surge, coupled with the ongoing aerospace stock analysis Iran conflict, has pushed the industry’s total order backlog to historic levels, with Lockheed Martin alone reporting $194 billion in unfilled orders at the start of the year. Investors and analysts are closely monitoring defense ETF performance during war, as the S&P Aerospace & Defense Select Industry Index has outperformed the broader S&P 500 by nearly 40 percentage points over the last 12 months. As the Lockheed Martin stock price war narrative intensifies alongside a military contractor profit 2026 outlook that projects 25% operating profit growth, the market is also weighing the relative stability of investing in gold vs oil 2026 amid Middle Eastern volatility. For those tracking the top defense stocks to buy 2026, the focus has shifted from simple revenue growth to the ability of the industrial base to expand production capacity under the Raytheon vs Northrop Grumman competitive dynamic.
The Trillion-Dollar Pivot: Analyzing the 2026 Defense Budget
The U.S. Department of Defense’s transition to a $1 trillion baseline in 2026 represents a 15% domestic spending increase, primarily authorized under the One Big Beautiful Bill Act (OBBBA). This shift is not merely a quantitative increase; it is a qualitative pivot toward high-intensity conflict readiness. The budget includes significant allocations for the “Big 5” contractors—Lockheed Martin, RTX (formerly Raytheon), Northrop Grumman, Boeing, and General Dynamics—who collectively hold nearly 30% of all defense contract obligations.
Economic analysis from TD Economics suggests this spending surge will add approximately 0.2 percentage points to U.S. real GDP growth in 2026. However, the industrial base is currently facing significant “supply-side” constraints. Production facilities for missile seekers and munitions are currently operating at near-maximum capacity, prompting the Department of Defense to coordinate multi-firm partnerships to triple production rates.
Corporate Performance: Lockheed Martin and the $194 Billion Backlog
Lockheed Martin (LMT) remains the central pillar of the U.S. defense industrial base, reporting 2025 year-end sales of $75.05 billion. The company’s financial guidance for 2026 emphasizes a 25% year-over-year increase in segment operating profit, a target supported by a record $194 billion backlog. This massive book of business provides a multi-year cushion against market volatility but also places intense pressure on the company’s “Aeronautics” and “Missiles and Fire Control” (MFC) segments.
Market Snapshot: Lockheed Martin 2025-2026 Performance
| Metric | 2025 Reported (Actual) | 2026 Guidance (Estimate) |
| Net Sales | $75.05 Billion | ~$78.8 Billion (+5%) |
| Operating Profit | $7.73 Billion | ~+25% Growth Target |
| Free Cash Flow | $6.9 Billion | $6.5 – $6.8 Billion |
| Total Backlog | $194 Billion | N/A |
| Dividend Yield | ~2.5% | Stable |
“2025 marked a year of unprecedented demand for Lockheed Martin capabilities… we invested more than $3.5 billion during 2025 in production capacity,” stated James Taiclet, Chairman and CEO, during the January earnings call.
Comparative Dynamics: Raytheon vs Northrop Grumman
The Raytheon vs Northrop Grumman comparison has become a study in diversifying defense portfolios. RTX (Raytheon) reported a total backlog of $268 billion, though this includes $161 billion from its commercial aerospace divisions (Collins Aerospace and Pratt & Whitney). In contrast, Northrop Grumman (NOC) maintains a more concentrated defense focus with a price-to-earnings ratio of 23.6, significantly lower than RTX’s 41.0.
Analysis of the 2026 fiscal year suggests RTX is benefiting from a 30% surge in military sales at Pratt & Whitney, driven by F135 engine production. Northrop Grumman continues to lead in long-cycle strategic programs, including the B-21 Raider and the Sentinel ICBM program. While RTX offers a “Value Score” of 19 from AAII, its “Growth Score” of 100 reflects the aggressive recovery of the commercial aerospace sector alongside defense demand.
Sector Trends: Defense ETF Performance and Geopolitical Risk
The defense ETF performance during war has served as a primary indicator of institutional sentiment. The iShares U.S. Aerospace & Defense ETF (ITA) and the Invesco Aerospace & Defense ETF (PPA) have seen significant inflows as investors seek diversified exposure.
ITA (iShares): Heavily weighted toward RTX and Boeing; benefited from the triple-digit growth in missile seeker demand.
XAR (SPDR): Equal-weighted structure, providing more exposure to mid-tier contractors like Cadre Holdings (CDRE), which reported a 42.5% gross margin in 2025.
PPA (Invesco): Focused on large-cap prime contractors, closely tracking the $1 trillion U.S. budget allocation.
The aerospace stock analysis Iran conflict reveals that these ETFs are increasingly viewed as a hedge against broader market downturns. While the S&P 500 dipped in early Q1 2026, defense stocks jumped 25% on average since the start of the year as the conflict damaged energy infrastructure and necessitated immediate replenishment of U.S. and allied munitions stockpiles.
Commodities and Hedging: Gold vs Oil 2026
In the current geopolitical climate, investing in gold vs oil 2026 presents a choice between direct conflict-driven volatility and long-term stability. U.S. crude oil prices nearly doubled in the first quarter of 2026, rising from $65 to over $110 per barrel in just one month.
Comparative Asset Performance (Q1 2026)
Crude Oil: +69% (Driven by Iranian infrastructure damage and supply disruptions).
Gold: +12% (Functioning as an inflation hedge and “flight to safety” asset).
Defense Stocks: +25% (Fueled by budget increases and backlog expansion).
While oil offers higher immediate returns, it carries significant downside risk if diplomatic resolutions are reached or if global demand cools due to high pump prices ($4+ per gallon). Gold, meanwhile, has experienced higher-than-usual volatility, with sharp swings surprising systematic funds that typically view the metal as a stable store of value.
Societal Impact: The Economy of Rearmament
The rapid expansion of the defense sector has tangible effects on the broader economy and labor market. The 2027 budget proposal, which seeks $1.5 trillion, includes a 7% pay boost for military personnel, a move designed to address recruitment challenges in a tight labor market.
Regionally, the “defense industrial base” is driving job growth in aerospace hubs such as Fort Worth (Lockheed Martin), Arlington (RTX), and Palmdale (Northrop Grumman). However, the concentration of profits remains a point of economic discussion; historical data indicates that a vast majority of oil and defense gains are distributed to the top 1% of shareholders, while consumers face higher costs for fuel and food due to fertilizer supply chain disruptions.
Strategy and Outlook: The Industrial Base Capacity
The core challenge for military contractor profit 2026 is no longer securing contracts—it is fulfilling them. Defense firms are projected to lift capital spending to $10.08 billion collectively this year, a 38% jump from 2025. This reinvestment is a response to government pressure to prioritize “acceleration of weapons production” over share repurchases.
As the industry moves through the second half of 2026, the primary metric for the top defense stocks to buy 2026 will be “execution on backlog.” Firms that can successfully navigate labor shortages and raw material bottlenecks to deliver on their multi-billion dollar orders are likely to maintain their market leadership.
Analysis: What the Numbers Show
The divergence between RTX’s high P/E ratio and Northrop Grumman’s lower valuation indicates that the market is pricing in “commercial recovery” for RTX but remains cautious about the long-cycle execution risks facing Northrop. For Lockheed Martin, the 25% profit growth guidance is contingent on a significant reduction in the $1.7 billion in “classified program losses” that hampered their 2024–2025 reporting periods.
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Source and Data Limitations: Financial data derived from Lockheed Martin (LMT) Q4 2025 Earnings Report (Jan 29, 2026) and RTX Corporation 2026 Outlook (Jan 27, 2026). Budgetary figures sourced from the White House FY2027 Budget Proposal and the One Big Beautiful Bill Act (OBBBA) analysis by TD Economics (Oct 2025). Market performance data provided by AAII and Bloomberg as of April 8, 2026. This report excludes speculative “war gaming” scenarios and focuses solely on appropriated funding and verified corporate backlogs. Stock performance metrics are historical and do not constitute future guarantees or investment advice.
