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Key Points
Defense giants like TransDigm, RTX, and Lockheed Martin are outperforming the S&P 500 amid escalating geopolitical concerns.
Tech companies including AMD, Broadcom, Amazon, Alphabet, Microsoft and Oracle are among the ranks of defense-industry suppliers and contractors. 
Defense stocks are at a unique meeting point between growth and income, attracting diverse investors.
5 stocks we like better than Lockheed Martin
They’re not the most glamorous or high-profile stocks, but in the past month, big defense companies like TransDigm Group Inc. NYSE: TDG, RTX Corp. NYSE: RTX, the company formerly known as Raytheon, and Lockheed Martin Corp. NYSE: LMT outperformed the S&P 500 as geopolitical worries heat up. 
Those are among the largest defense stocks by market capitalization. On a one-month basis, TransDigm and RTX are the top performers within the Industrial Select Sector SPDR Fund NYSEARCA: XLI. Get Lockheed Martin alerts:Sign Up
Defense stocks as a group got an initial boost back in February 2022 at the start of te Ukraine war, but then pulled back. They’ve been trending steadily higher since September 2022, but really took off in November. 
Since then, greater concerns about tensions between China and the U.S., and the conflict between Israel and Palestine, have sent more dollars flowing into defense company coffers. 
In a November 2023 report, Goldman Sachs investment officer Ashish Shah wrote, “National security threats are growing in magnitude and complexity, driving wider need for the latest defense technologies. Companies positioned to benefit as the U.S. and other NATO countries increase their spend on high-tech surveillance and deterrence should do well.”
Tech R&D fast-growing area of defense industry
Defense spending includes technological research and development, which has been a fast-growing area of the wider industry. That’s also impacted industries that supply defense, such as semiconductors. 
Chipmakers that are significant suppliers to the military and defense industry include Advanced Micro Devices Inc. NASDAQ: AMD and Broadcom Inc. NASDAQ: AVGO. However, because chipmakers’ businesses are so wide-ranging, and generative AI has been the dominant growth driver for the chip industry, it’s difficult to pinpoint how much of the rally in those stocks to attribute to defense spending. The ranks of defense contractors also include cloud titans Inc. NASDAQ: AMZN, Alphabet Inc. NASDAQ: GOOGL, Microsoft Corp. NASDAQ: MSFT  and Oracle Corp. NYSE: ORCL.  
The contracts, awarded in 2022, entail providing the U.S. defense department with “globally available cloud services across all security domains and classification levels, from the strategic level to the tactical edge,” through approximately June 2028. 
Chipmakers, cloud computing companies, cybersecurity specialists and other techs can certainly see revenue boosts through these defense-related government contracts. 
Unique mix of growth and income traits

While the increased defense spending globally is clearly a revenue driver, defense stocks may be at an unusual meeting point between growth and income, which could attract both types of investors.
In a December blog post, “Aerospace & Defense Stocks Surge: The New Geopolitical Trade?”, asset manager Direxion noted that interest in AI, the dominant growth trade in recent months, could boost defense stocks. 
 “The recent strength in defense stocks may be some residual effect of the recent excitement over AI, which figures to play a key role in the defense industry in the future.” 
But as Direxion also noted, “Although short-term traders clearly aren’t interested in dividends, the reality is that some long-term investors are attracted to the dividend yields of aerospace and defense stocks. This is another factor that may keep a bid under the sector.”
Lockheed Martin’s dividend yield is 2.74%. The RTX dividend yield is 2.76%, while the Northrup Grumman dividend yield is 1.58%. 
TransDigm: Appealing to wide range of investors
TransDigm has been a leader not only in the aerospace industry and industrial sector, but also within the broader market. In fact, it’s made it onto several growth stock screens in the past few months, after gapping out of a flat base in November.
You can see that price action on the TransDigm chart. 
In the past year, TransDigm has outperformed the S&P by a wide margin, giving it some appeal to growth investors.
But, to Direxion’s point, it also makes a case for income seekers. 

In November, the company authorized a special cash dividend of $35 per share. Before you consider Lockheed Martin, you’ll want to hear this.MarketBeat keeps track of Wall Street’s top-rated and best performing research analysts and the stocks they recommend to their clients on a daily basis. MarketBeat has identified the five stocks that top analysts are quietly whispering to their clients to buy now before the broader market catches on… and Lockheed Martin wasn’t on the list.While Lockheed Martin currently has a “Hold” rating among analysts, top-rated analysts believe these five stocks are better buys.View The Five Stocks Here Click the link below and we’ll send you MarketBeat’s list of the 10 best stocks to own in 2024 and why they should be in your portfolio. Get This Free Report

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