2 Defense Stocks to Buy as Global Military Spending Climbs

RTX has a $289 billion order backlog that the article says could reach $460 billion by the end of 2028, supported by rising U.S. and international defense spending and military replenishment demand for products such as Tomahawk missiles. The White House's fiscal 2027 defense-budget request totals $1.5 trillion, up 42% from 2026, while global defense spending reached $2.9 trillion last year. Newly spun-off Honeywell Aerospace trades 45.1% below its 52-week high but is investing $500 million in domestic facilities to pursue more U.S. Department of Defense business and may eventually initiate a dividend.

Analysis

RTX’s upside is less about nominal defense-budget growth than mix: precision munitions and air/missile-defense replenishment carry faster award-to-revenue conversion than major platforms, but capacity expansion can initially dilute margins through labor, supplier qualification, and fixed-price execution. The key earnings variable over the next 1-3 quarters is whether missile bookings convert into funded production lots and accelerated deliveries, rather than remaining multiyear backlog. Lockheed Martin (LMT), Northrop Grumman (NOC), and General Dynamics (GD) should also benefit, but RTX has the most direct exposure to consumables and interceptor replenishment.

HONA’s potential opportunity is a classic spin-off setup: forced selling, incomplete standalone investor ownership, and initially underappreciated defense content can create a 6-18 month rerating. Yet the investment case should not rest on an eventual dividend; the more important evidence will be segment margin stability, free-cash-flow conversion after separation costs, and returns on the planned capacity investment. Unlike pure-play primes, HONA’s defense systems face component-cycle risk and could see lower incremental margins if OEM and government customers use its new standalone status to press pricing.

Consensus may be too linear on defense appropriations. Higher top-line requests do not ensure timely contract awards, and a continuing resolution, procurement reprioritization, or ceasefire-driven munitions normalization could defer revenue despite robust demand signals. Conversely, a supply bottleneck in energetics, rocket motors, castings, or electronics would shift pricing power toward constrained subsystem suppliers and limit prime-contractor conversion.

Key Decisions for Investors

• Maintain/enter a 6-12 month long RTX position only on confirmation of missile-segment margin and funded-order conversion at the next earnings print; target 10-15% upside from estimate revisions, with a stop/reassessment if defense margins contract or backlog-to-sales conversion slows for two consecutive quarters.
• Watch HONA for a post-spin technical entry over the next 1-3 months rather than buying solely on the drawdown. Initiate only if standalone guidance demonstrates positive free-cash-flow conversion and separation costs are bounded; use a 7-10% downside risk limit because dividend timing and capital structure remain unverified.
• Pair trade for a defense-spending acceleration scenario: long RTX / short HON over 3-6 months. RTX has more direct munitions sensitivity, while HON retains broader industrial-cycle exposure; close if HON’s remaining businesses show materially stronger organic-order growth or RTX reports production bottlenecks.
• Set an alert around U.S. appropriations and supplemental-funding milestones: funded procurement acceleration supports RTX/LMT/NOC, while a continuing resolution or delayed production authorization is a reason to reduce prime exposure before revenue estimates reset.