3 Defense Stocks to Buy in May

The article highlights a rising U.S. defense budget above $1 trillion, with proposals for up to $1.5 trillion next year, supporting contractors tied to missile defense, aerospace, and space systems. RTX is positioned to benefit from Golden Dome and replenishment demand, Honeywell’s aerospace spinoff could unlock value, and Rocket Lab has won $816 million and $190 million defense contracts. The piece is broadly bullish on defense exposure, though it is more thematic commentary than a near-term catalyst.

Analysis

This is less a broad “defense up” trade than a funding-cycle re-rating for a narrow set of platform winners. The market is likely underestimating how much of the incremental budget will be pulled toward missile defense, space-based sensing, and hypersonic test infrastructure — categories where solution depth, qualification history, and integration complexity create a moat and compress the vendor field. That favors RTX as the prime incumbent and gives Rocket Lab an outsized optionality bid because it sits at the intersection of launch, payload integration, and defense experimentation rather than pure launch economics.

The second-order winner is the supply chain behind these primes: navigation, actuators, power systems, precision hardware, and software-defined avionics should see a multi-year volume tailwind before headline revenue inflects. Honeywell’s spinoff matters because the market typically pays up for “pure-play” aerospace/defense names with cleaner capital allocation and higher multiple transparency; the valuation uplift may come first, while the operating uplift from defense replenishment is a slower 6-18 month story. The risk is that investors are already paying for the budget narrative while procurement execution lags, so near-term misses or delays in contract awards could create sharp drawdowns even if the thesis remains intact.

The contrarian angle is that the real scarcity value may not be in the large primes, which are consensus-owned, but in smaller, higher-beta enablement names that can compound backlog faster off a smaller base. Rocket Lab’s defense pivot is meaningful because it creates a path from “adjacent to defense” to “mission-critical test and space layer,” which could justify a higher multiple if backlog converts cleanly over the next 4-6 quarters. Conversely, RTX’s aftermarket stability reduces downside, but that also caps upside unless Golden Dome-related wins accelerate faster than expected; the market may be overpricing safety and underpricing growth dispersion within the group.

Key Decisions for Investors

• Long RTX on 3-6 month horizon; use dips tied to procurement timing as entry points. Risk/reward favors a core position because aftermarket cash flow limits downside while missile-defense awards provide upside convexity.
• Buy HON ahead of the aerospace spin as a sum-of-the-parts catalyst; hold through late-June into the first post-announcement valuation reset. Better risk/reward than chasing the newco later if the separation reveals a higher-multiple defense asset.
• Initiate a tactical long RKLB position for 6-12 months; the defense backlog-to-revenue conversion is the key catalyst, but size modestly because execution and dilution risk remain high. Best viewed as a high-beta satellite to the prime contractors.
• Pair trade long RTX / short a basket of less-exposed industrial cyclicals over the next quarter. The thesis is that defense budget reallocation will support revenue visibility in RTX while non-defense industrials face slower order conversion.
• If available, use call spreads on RKLB rather than outright equity for event-driven upside over 2-4 quarters. The structure caps premium outlay while preserving exposure to contract-driven rerating.