2 Defense Stocks Worth Buying as Global Tensions Continue

Kraken Robotics reported revenue up 60% YoY to $31M last quarter, with recent subsea battery orders of $24M across 10+ customers and $35M in January sales, and has acquired Covelya Group; market cap ~ $1.5B suggests early-stage growth upside. Lockheed Martin generated $75B in revenue last year with a record backlog of $194B at end-2025, a market cap of ~$139B and a forward P/E of 20; the proposed $185B Golden Dome missile-defense budget and ongoing F-35 servicing underpin steady cash flow and growth projections for 2026.

Analysis

Subsea battery demand creates a classic small‑supplier-once-infrastructure-opportunity dynamic: a narrow set of specialized producers can capture outsized margin expansion while raw‑material and precision‑machining bottlenecks propagate price power upstream. Expect single‑buyer concentration and long lead times to drive renegotiation of contract terms (higher use‑or‑pay, cadence guarantees, and inventory financing) that improve seller cash conversion but raise program delivery risk for buyers.

A second‑order winner set is non‑obvious: makers of pressure-tolerant housings, subsea connectors, and qualification/test rigs will see order cascades ahead of generalist battery cell manufacturers. That creates an M&A arbitrage window — strategic buyers with broad defense OEM relationships will look to bolt on these niche suppliers to secure supply and reduce TOC (total ownership cost), lifting multiples for targets over a 12–36 month window.

For the large defense primes, stable topline/backlog visibility mutes headline volatility, but they face margin squeezes from subcontractor capacity constraints and commodity inflation. The practical playbook is to prioritize securing suppliers via equity stakes or long‑term supply contracts; failure to do so is the biggest operational risk and a catalyst for near‑term share‑price underperformance if cost overruns hit guidance.

Key Decisions for Investors

• KRKNF — Tactical asymmetric long (12–24 months): buy 18–24 month LEAP calls (or a 12–24 month 1:1 call spread) sized small (1–2% portfolio). Rationale: captures potential order cadence and multiple expansion while capping premium risk; target 3x return if supplier signs multi‑country framework or becomes strategic acquisition. Stop: 40% premium decay or failure to announce material orders in two consecutive quarters.
• LMT — Core allocation with income overlay (6–18 months): buy shares or initiate via buy-and-hold while selling 6–12 month covered calls or cash‑secured put spreads to reduce basis by collecting premium. Rationale: monetize near‑term optionality from program awards while retaining long exposure to backlog; acceptable downside defined by put strike (aim for <8% yield to worst).
• Pair trade — Growth arbitrage (12–36 months): long small‑cap subsea supplier exposure (KRKNF) vs. short modest size in large prime (LMT) to express faster secular growth in unmanned systems. Structure 2:1 long:short notional to tilt toward growth capture; expected payoff if budgets reallocate to unmanned platforms. Risk: geopolitical de‑escalation that compresses small‑cap growth premium; cap position size to 2–3% net exposure.
• Event catalyst alert: monitor DoD/ally procurement rollouts and congressional budget markups — initiate or scale positions within 5 trading days of program award announcements (buy on confirmation, trim into headline-driven squeezes).