Buy 3 Defense Laggards of Past Month With Short-Term Price Upside

The cleanest read-through is not simply “defense up,” but that the market is still underpricing backlog duration and pricing power dispersion within the sector. Names with exposure to long-cycle platform programs and aftermarket support should continue to compound even if new awards slow, because the budget signal extends the visibility window and lowers cancellation risk. That makes the current weakness in the group more interesting than a broad sector call: the selloff is creating entry points in companies where revenue is already locked in, while smaller or more export-dependent primes could see less immediate benefit.

Second-order beneficiaries are likely to be component suppliers, software/cyber vendors, and testing/integration firms that sit behind the primes, since higher defense outlays usually flow through to subsystems before full platform replacement cycles accelerate. The bottleneck is not demand but execution: labor constraints, missile and avionics supply chains, and government procurement timing can delay revenue recognition even when orders are strong. Over the next 1-2 quarters, earnings revisions matter more than headline budget rhetoric; companies with improving estimate momentum should continue to outperform.

The main contrarian risk is that consensus is treating fiscal expansion as linear, when defense spending often arrives in waves and can be offset by program delays, continuing resolution risk, or political pushback on the out-year spending path. The valuation gap between these names and the broader market is already justified by stability, so alpha likely comes from relative selection, not owning the whole basket. ESLT offers the most torque to the theme, but also the highest sensitivity to geopolitical de-escalation and FX/region-specific headline risk; LMT is the best quality/visibility name, while NOC is the cleanest backlog-to-cash flow story if estimates keep drifting up.