3 Defense Stocks To Buy With The Middle East In Turmoil

The aerospace and defense sector is experiencing robust growth, with the S&P Aerospace & Defense Select Industry Index up 24.3% year-to-date in 2025, driven by escalating geopolitical tensions and a projected $2.5 trillion in global defense spending by 2025. Despite recent short-term flatness, analysts anticipate significant continued gains as defense spending becomes a global budget priority and technology redefines military superiority. Key players like Howmet Aerospace, RTX Corp., and cybersecurity firm CrowdStrike Holdings are highlighted for their strong performance and potential as strategic investments, offering a hedge against broader market volatility.

Analysis

The aerospace and defense sector is exhibiting strong momentum, with the S&P Aerospace & Defense Select Industry Index posting a 24.3% year-to-date return for 2025, driven by a confluence of powerful secular and geopolitical tailwinds. Global defense spending is projected to hit a record $2.5 trillion by 2025, fueled by ongoing conflicts in Ukraine and the Middle East, along with the U.S. defense budget surpassing the $1 trillion mark. Despite the index's recent one-month flatness (down 2%), analysts view this as a potential consolidation before an anticipated rally, suggesting the market has yet to fully price in the impact of recent escalations. This outlook is reinforced by the iShares US Aerospace & Defense ETF (ITA), which has surged over 25% year-to-date. Within the sector, specific companies demonstrate notable strength: Howmet Aerospace (HWM) reported a 19% rise in defense aerospace revenues in Q1 2025 and enjoys strong institutional ownership. RTX Corp. (RTX) is highlighted as a stable large-cap dividend payer with a forecasted 10% upside in the next 6-9 months. A significant thematic shift is the redefinition of defense by technology, positioning cybersecurity as a critical growth vertical. CrowdStrike (CRWD), up 50% year-to-date, exemplifies this trend, with analysts citing its AI capabilities and labeling the sub-sector as the 'new defense'.

Key Decisions for Investors

• Investors should consider overweighting exposure to the aerospace and defense sector to capitalize on the sustained increase in global defense budgets and persistent geopolitical tensions.
• For direct equity plays, evaluate established component suppliers like Howmet Aerospace (HWM) for its strong defense segment growth and institutional support, alongside large-cap dividend payers like RTX Corp. (RTX) for stability and income.
• Acknowledge the strategic pivot to technology by allocating capital to high-growth cybersecurity firms such as CrowdStrike (CRWD), which is positioned as a 'new defense' investment with significant analyst backing.
• Utilize sector-specific ETFs like the iShares US Aerospace & Defense ETF (ITA) not only for broad exposure but also as a potential hedge against volatility in other market segments that may be challenged by the current geopolitical climate.