Five government contractor stocks to buy for growth offer enticing opportunities to profit despite the market’s recent tariff-related downward trend.
The five government contractor stocks to buy for growth are examples of companies that look sturdy enough to withstand turbulent times, such as now, when President Trump’s cost-reduction moves are trimming federal government jobs and slashing programs considered expendable by him. President Trump’s tactics of assessing tariffs to reduce trade imbalances, along with talk about wanting allies to fund their own defense rather than depend on the United States to backstop them, have aided share price gains of European companies in recent weeks.
For investors, it’s key to know which catalysts may lie ahead during the next year or so to aid government contractors in an array of industries such as aerospace, space, defense and satellites. Another factor to weigh is potential reduced economic activity in the United States stemming from billionaire entrepreneur Elon Musk spearheading federal job cuts in his role in helping lead the new Department of Government Efficiency (DOGE).
Five Government Contractor Stocks to Buy for Growth: Guidance from Gursky
Some positive potential catalysts include: 1) the passage of the U.S. government’s FY25 budget, 2) the introduction and passage of the FY26 federal budget and 3) award announcements from both the United States and its European allies, wrote Jason Gursky, an aerospace and defense analyst with Citi Research. In a recent research note, Gursky opined that all three catalysts are likely to support mid-single-digit-percentage growth. It may seem anemic, but it compares favorably to the -1% to +1% currently being priced into the stocks, he added.
“We recognize this view will require patience, with headlines often losing sight of the long-term fundamentals of the industry,” Gursky continued. “And the inability of Congress to pass spending bills in a methodical manner can create volatility. But so long as the threat environment remains elevated, and the United States plans to continue its leadership role in the world — either as the lone superpower or as a power in a multi-polar world — we expect defense spending to remain robust and for defense company stocks to perform well from current levels.”
However, the macro economic backdrop remains a bit uncertain, with headlines related to DOGE’s efforts at the Pentagon to cut jobs and programs, Gursky wrote. The action put downward pressures on U.S. defense services contractors in the second half of March.
Five Government Contractor Stocks to Buy for Growth: PLTR
Denver-based Palantir Technologies (PLTR) has advanced more than 6% since the last issue of the Investing Edge newsletter led by Jim Woods, a former Army officer. The gain is more than 32% since its Jan. 15 buy recommendation.
“Compare that to the S&P 500’s decline of more than 5% over that same period and you can see why PLTR continues to deliver,” Woods told me.
Jim Woods heads the Investing Edge newsletter and Bullseye Stock Trader.
Palantir’s partnership with the U.S. Army began in 2008 to design and deploy modern mission software with improved capabilities. The company’s solutions are used across nearly every Army mission, ensuring data is accessible for fast decision-making that allows the warfighter to out-think and out-pace the adversary, Palantir officials said.
Palantir seeks to operate as the “connective tissue” between Army personnel, data and resources by delivering critical information to the key decision-makers when needed, company officials stated. It enhances the preparedness of soldiers who use wearable sensor and mobile technologies in the battlefield.
However, the immense amount of data produced risks overwhelming both the individual soldiers and the battlefield decision-makers who lead them. Palantir tries to harness hardware solutions, reduce system complexity and provide improved human-machine interfaces to aid soldiers in the field and commanders at a forward-operating base (FOB). Situational awareness powered by visual augmentation, sensor optimization and secure capabilities helps to reduce cognitive challenges, as well as to protect and to connect warfighters.
Those who remember the U.S. special forces locating al-Qaeda founder Osama bin Laden‘s compound in Abbottabad, Pakistan, where he was killed on May 2, 2011, may be interested to know that a Palantir software product called “Gotham,” was rumored to have been used by counterterrorism analysts at U.S. government agencies to integrate and analyze data. The information could have included intelligence reports, surveillance and reconnaissance.
Five Government Contractor Stocks to Buy for Growth: Ground Support
Woods, who recently launched the Investing Edge newsletter, is a former Army paratrooper and combat veteran who tracks the defense industry closely. When it comes to military operations, aggression, manpower and firepower still require the right intelligence to win battles, Woods said. Palantir is star performer in the Top 10 Growth Accelerators portfolio of Investing Edge.
“What Palantir does so well is provide the right intel,” Woods continued.
Intelligent ground systems are at the heart of the Army’s realization of a multi-domain operations concept, Palantir officials said. To empower commanders to make sense of a complex battlefield, ground systems are key to aid understanding.
Palantir is investing in bringing software to the core of critical command and control nodes by connecting them to assets across space, high altitude, aerial and terrestrial layers to improve targeting, situational awareness and understanding, the officials added.
Five Government Contractor Stocks to Buy for Growth: Airborne AI Advances
New aviation modernization efforts extend the reach of Army intelligence, manpower and equipment to deter threats at extended range. Palantir deploys artificial intelligence (AI)/machine learning-enabled solutions onto airborne platforms to let users see farther, generate insights faster and react quickly, the company reported.
Its technologies are helping to advance aviation capabilities for the United States and its allies by fielding and managing on-platform software solutions, as well as advancing distributed Command and Control (C2) through teaming and collaboration across platforms. The military emphasizes decentralized command and control structures to improve resilience and survivability in complex operational environments.
As more sensors are deployed to an expanded battlefield, networks must adapt to physical and environmental challenges, company officials said. Palantir Edge AI aids users in maintaining uninterrupted access to data.
Palantir’s AI is designed to scale and operate in austere environments and in situations where time and efficiency matter. The company operates in low-bandwidth and low-power conditions, including on drones, aircraft, ships, robots, buildings and satellites.
“You might find Palantir’s software is the greatest ‘force multiplier’ in military history,” Woods told me. “I say that not as hyperbole, but as one who knows from experience that superior knowledge and access to battlefield intelligence is the real key to operational victory.”
For the U.S. Army to meet its digital transformation goals, authoritative data from across an enterprise must be integrated, managed and made accessible. Palantir’s platform is intended to integrate and transform large scale data for robust analytics and to provide operational insights, company officials said. Continuous feedback loops between data, analytics and scenario planning are used to help Palantir create value.
Chart courtesy of www.stockcharts.com.
Five Government Contractor Stocks to Buy for Growth: SAIC
Science Applications International Corp. (NASDAQ: SAIC), a government contractor services, information technology and defense contractor in Reston, Virginia, is a buy recommendation of Citi Research. SAIC offers products and services across the defense, space, civilian and intelligence markets, including solutions in engineering and information technology (IT).
The contractor’s capabilities with existing and emerging technologies are aimed at integrating the best components from its own portfolio and its partners to provide innovative, effective and efficient solutions. As a large, market-leading service provider to the U.S government, SAIC generates approximately $7.2 billion in annual revenues, strategically aligned to areas of national importance and increased customer investment.
With recurring revenue as a government contractor, the company has opportunities to enhance its profit margin and produce strong free cash flow. SAIC seeks to use disciplined capital deployment to create shareholder value, along with a balanced mix of dividends, share repurchases and acquisitions.
Five Government Contractor Stocks to Buy for Growth: Earnings Outperformance
On March 17, SAIC reported fourth-quarter and fiscal 2025 year-end results ended Jan. 31 that beat analysts’ consensus expectations due to new program wins and on-contract growth, Citi Research wrote in a recent research note. SAIC also raised its fiscal year 2026 guidance, once again with a fourth-quarter and full fiscal year ending date of Jan. 31.
Importantly, SAIC has improved at winning bids to keep its contracts, providing visibility for both revenue and margins, Citi Research wrote. It appears the company currently has roughly 85% backlog coverage on its FY26 revenue outlook, with roughly 75% of its targeted growth programs already signed, the investment firm continued.
“That’s a pretty good place to be at this point in the year,” Citi Research’s Gursky wrote. “That said, the macro backdrop remains a bit uncertain, with headlines related to DOGE’s efforts at the Pentagon putting downward pressures on defense services companies.”
At this point, Gursky opined that he remains optimistic about share prices and the earnings outlook for SAIC due to the mission critical areas that it supports. Further, expect defense contractors to benefit in the medium term if government headcount falls but corresponding missions are not eliminated, he added.
Chart courtesy of www.stockcharts.com.
Five Government Contractor Stocks to Buy for Growth: HWM
Howmet Aerospace (NYSE: HWM) is an advanced engineering company in Pittsburgh that is not as well known as other giant U.S. aerospace and defense companies. But it offers some critical components in the F-35 joint strike fighter that hits Mach 1.6 under the thrust of possibly the most advanced engine on earth.
The joint strike fighter is built with cutting-edge materials, integrated airframe design and next-generation avionics to enable this fifth-generation fighter jet to operate with potentially unprecedented stealth, speed and agility in air-to-air and air-to-ground combat, company officials said.
In developing this complex fighter jet, Lockheed Martin (NYSE: LMT) turned to Howmet to provide key parts that include single-piece, forged aluminum bulkheads that form the backbone of the aircraft structure and save 300 to 400 pounds per jet, while cutting costs by 20%. The fighter jet also has titanium bulkheads and uses titanium to manufacture other airframe structures for all three F-35 JSF variants. Howmet further supplies single-crystal, nickel-based super alloy blades and vanes that operate in environments hotter than the melting point of the metal to propel the engine.
A seasoned stock picker who likes Howmet Aerospace as a buy recommendation is Jim Woods, who put the stock in his Investing Edge newsletter’s Top 10 Growth Accelerators portfolio. Howmet Aerospace is a top-performing pick in the Top 10 Growth Accelerators portfolio of Investing Edge.
Howmet Aerospace is up 20.49% year to date through the close of trading on Tuesday, April 1.
Woods also recommended Howmet as a stock in his Bullseye Stock Trader advisory service during February 2025. Despite the market’s slippage in recent weeks, the related call options he advised his Bullseye Stock Trader subscribers to buy are up by double-digit percentages.
Chart courtesy of www.stockcharts.com.
Five Government Contractor Stocks to Buy for Growth: BAESY
London-based BAE Systems plc (OTCMKTS: BAESY), an aerospace, defense and information security company and contractor, has boosted its dividend payout for 21 straight years and further enhanced share-price valuation by buying back stock. BAE reported 2024 earnings per share (EPS) that finished 3% ahead of consensus analysts’ estimates.
The DAX Index in Germany is up 16.8% so far this year, with the London Stock Exchange’s FTSE 100 rising 6.01%, compared to a dip of 1.78% for the S&P 500. Defense stocks are among the market leaders in Europe due to U.S. President Donald Trump calling for those countries to start funding an increasing amount of their own defense, rather than relying on the United States to protect them.
Germany, as Europe’s largest economy, is setting an example with its Chancellor-in-waiting Friedrich Merz vowing that his government will do “whatever it takes” to support Ukraine to fend off Russia’s invasion of its neighboring nation that has gone on for three-plus years. He has proposed amending Germany’s constitution to exempt defense spending from the country’s strict fiscal constraints.
Chart courtesy of www.stockcharts.com.
Five Government Contractor Stocks to Buy for Growth: Connell’s Counsel
“BAE makes the most sense to me due to its large and technically proficient defense portfolio,” said Michelle Connell, founder and chief investment officer of Dallas-based Portia Capital Management, LLC.
With investment markets potentially having further downside in the near term, Connell suggested that investors use a dollar-cost averaging strategy. That approach involves investing a fixed amount of money at regular intervals, regardless of the market’s fluctuations, to buy additional shares when prices are low and fewer when prices are high. The intent is to reduce the average cost per share.
JPMorgan described BAE as a good “long-term holding,” but also advised not to chase the stock at lofty levels. The European defense stocks have pulled back slightly in the last week or so and may retreat further, Connell cautioned.
Another way to invest in BAE Systems and the other European defense stocks is through exchange-traded funds (ETFs), Connell counseled. She suggested buying a basket of quality defense companies in a fund and letting the most successful companies propel the performance.
Michelle Connell heads Portia Capital Management.
With an uncertain outlook in the U.S. market and government spending cuts under President Trump, U.K. and European defense funding could offer a superior opportunity, according to JPMorgan.
BAE is a uniquely diversified defense company, by geography and products, according to a recent JPMorgan research report.
Five Government Contractor Stocks to Buy for Growth: RTX
Connell also likes Arlington, Virginia-based RTX Corporation (NYSE: RTX), formerly Raytheon Technologies Corporation. But she advised waiting for a pullback. Connell said she views the stock as temporarily overvalued, counseling that the wisest move for investors may be to wait for the company to report quarterly results on April 23 before buying shares.
“If an investor likes its long-term prospects, I would wait until the earnings announcement gives clarity or the stock comes back to support — the 200 day average — $115 per share,” Connell said.
RTX recently offered a dividend yield of 1.90% and has much going for it, Connell counseled:
“If one buys into this argument, new defense orders will not affect RTX until the middle of Trump’s term,” Connell continued. “Maybe Trump won’t have as much leverage on defense spending at that point.”
In addition, RTX is in the middle of a cost reduction program for procuring outside materials, Connell said. The cost-cutting program has allowed RTX to boost its margins on an ongoing basis, she added.
Five Government Contractor Stocks to Buy for Growth: Calls for Caution
RTX is not without concerns, Connell cautioned. The company faces the potential impact of tariffs on RTX’s materials, including steel; 39% of the company’s sales are international and the European Union (EU) and other areas may decide to handle their own defense aerospace needs. In addition, President Trump’s tariff ultimatums may also affect the commercial aerospace needs of the same countries.
Like every other stock, the current political environment creates much uncertainty for RTX, Connell warned. She predicted RTX could have 20% upside over the next 12-15 months. However, the stock is up 45% in the last year.
While 2025 has not been kind to the S&P 500, RTX recently was up almost 13% year to date — even with a slight pullback in the past week. In terms of its fundamentals, price to earnings and price to sales, it’s only trading at slight premiums, Connell continued.
Chart courtesy of www.stockcharts.com.
Five Government Contractor Stocks to Buy for Growth: Summary
The five government contractor stocks to buy for growth offer investors a chance to profit in a flagging market. Aided by Europe’s increased spending on defense, the stocks provide a way to diversify amid the world’s continuing wars and President Trump’s tendency to threaten or apply tariffs.
Russia’s expanding invasion of Ukraine, and Hamas extending its deadly conflict in the Middle East by continuing to hold back on releasing the remaining hostages taken during its attack against Israel on October 7, 2023, are spurring a jump in military spending. President Trump’s willingness to impose tariffs is also causing market pullbacks, complicating investing decisions and adding appeal to companies that have steady government contracts.
Paul Dykewicz, www.pauldykewicz.com, is an award-winning journalist who has written for Dow Jones, the Wall Street Journal, Investor’s Business Daily, USA Today, the Journal of Commerce, Crain Communications, Seeking Alpha, Guru Focus and other publications and websites. Paul can be followed on Twitter @PaulDykewicz, and is the editor and a columnist at StockInvestor.com and DividendInvestor.com. He also serves as editorial director of Eagle Financial Publications in Washington, D.C. In that role, he edits monthly investment newsletters, time-sensitive trading alerts, free weekly e-letters and other reports. Previously, Paul served as business editor and a columnist at Baltimore’s Daily Record newspaper and as a reporter at the Baltimore Business Journal. Plus, Paul is the author of an inspirational book, “Holy Smokes! Golden Guidance from Notre Dame’s Championship Chaplain,” with a foreword by former national championship-winning football coach Lou Holtz. The uplifting book is endorsed by Joe Montana, Joe Theismann, Ara Parseghian, “Rocket” Ismail, Reggie Brooks, Dick Vitale and many other sports figures. To buy signed and specially dedicated copies, call 202-677-4457.
When you’re around something enough to become intimately familiar with it, it’s easy to forget…
This Friday is May 1, also known as “May Day,” in many countries around the…
Three defense investments with potential to outperform stand to benefit from the latest budget request…
This content is for paid subscribers only. To gain access subscribe to one of our…
This content is for paid subscribers only. To gain access subscribe to one of our…
This past week, the question of whether the current $600 billion in capex spending on…