2 Defense Stocks to Buy as Global Military Spending Climbs

RTX has a $289 billion backlog that could reach $460 billion by the end of 2028, supported by accelerating U.S. and global defense procurement. The U.S. fiscal 2027 defense budget request totals $1.5 trillion, up 42% from 2026, while global defense spending reached $2.9 trillion last year. Honeywell Aerospace, despite trading 45.1% below its 52-week high as of Sept. 23, is investing $500 million in domestic facilities to pursue more Department of Defense business and may eventually initiate a dividend.

Analysis

RTX’s investable edge is not simply defense-budget beta: replenishment programs convert into higher-margin missile and air-defense mix, while its installed commercial-aerospace base can absorb fixed costs and support aftermarket cash generation. The key second-order constraint is propulsion, energetics, castings and skilled-labor capacity; primes with supply-chain control can recognize revenue sooner, while smaller subsystem vendors may face working-capital strain before contract economics improve. Lockheed Martin (LMT), Northrop Grumman (NOC) and General Dynamics (GD) should participate, but RTX has relatively greater exposure to the near-term consumables/replenishment cycle rather than multiyear platform awards.

The principal near-term risk is that a budget request is not an appropriation: continuing resolutions, procurement-account reallocations, export approvals and production bottlenecks can defer revenue recognition by quarters despite strong demand. Over 1-3 months, watch supplemental appropriations, missile-lot awards, Pentagon production-rate disclosures and RTX’s bookings-to-sales ratio; over 6-18 months, the relevant question is whether capacity investments translate to margin expansion rather than merely higher inventory and capex. A sustained decline in conflict intensity, export restrictions, or evidence that accelerated output is dilutive to segment margins would challenge the thesis.

HONA requires exceptional caution until the spin mechanics, pro forma leverage, pension/indemnity obligations, stand-alone costs and actual ticker eligibility are independently verified. A post-spin drawdown can reflect forced selling and index dislocation, but aerospace/defense suppliers often trade cheaply for valid reasons—especially if separation costs, customer concentration, or investment needs impair free-cash-flow conversion. The contrarian opportunity is therefore not to buy the narrative immediately, but to monitor for a first clean quarter showing stable aftermarket demand, positive FCF after separation costs, and credible capital-return capacity.

Key Decisions for Investors

• Maintain or initiate a 6-12 month long RTX position on pullbacks, sized against LMT or NOC as a relative-value hedge; thesis is superior exposure to replenishment and aftermarket mix. Exit/reduce if the next two quarterly reports show book-to-bill below 1.0 or missile/defense margin guidance is cut.
• Use a 3-6 month pair: long RTX / short LMT in equal dollar beta-adjusted amounts if new consumables or air-defense awards are confirmed. The spread should benefit if procurement shifts toward production-rate acceleration; stop out on a material program win or upward FCF revision at LMT that closes the relative catalyst gap.
• Do not establish a directional HONA position until SEC filings confirm capital structure and segment financials. Create an alert for the first post-spin earnings release: consider a 12-18 month long only if management demonstrates positive adjusted free cash flow after stand-alone costs and net leverage is consistent with investment-grade funding.
• Monitor suppliers exposed to constrained missile inputs rather than broadly adding defense beta: a production-rate increase without corresponding deliveries is a signal to avoid chasing RTX and instead reassess component-capacity beneficiaries. Missing data are contract-level supplier exposure and qualified capacity, so this remains a research watch item rather than a trade.