Three Defense Investments with Potential to Outperform

Three defense investments with potential to outperform stand to benefit from the latest budget request for the U.S. national defense to gain a 44% increase in overall spending.

The funding also would enable innovative contracting approaches that provide flexibility in rapidly maturing technology and in delivering a portfolio of capabilities that broaden opportunities for new entrants, the request noted. Advances that enhance effectiveness by using artificial intelligence, drones and other technology is helped to spur the spending, as well as the wars that are occurring with Russia’s four-plus-year invasion of Ukraine and Iran enriching uranium while its military leaders vow to use it to destroy Israel and threaten other counties.

To protect American service members from unmanned drone systems of adversaries, the proposed fiscal 2027 budget requested by the Trump administration seeks “unprecedented investments” in unmanned and counter-unmanned systems. For example, the funding would arm America’s military’s combat units with drones, while also providing protection against the proliferation of inexpensive unmanned systems by near-peer competitors, rogue states and non-state actors, according to the budget document.

Three Defense Investments with Potential to Outperform: AI Involvement

The United States also intends to sustain its early inroads in artificial intelligence (AI), which is transforming how the Department of Defense fights and operates, the document continued. Consistent with America’s “AI Action Plan,” the budget makes “historic investments” to aggressively scale its AI ecosystem and ensure broad adoption throughout the U.S. armed forces. The sought-after funding further includes the development and fielding of new AI capabilities, buildout of new American AI infrastructure and continued support for the GenAI.mil platform, according to the Trump administration.

The Golden Dome proposed by President Trump also represents the most significant missile defense initiative in U.S. military history, according to Citi Research. The plan is to develop a defensive shield to protect the United States from incoming missiles.

The market has started to trade sideways but I predicted on Tuesday, April 28, that the Fed likely would leave interest rates unchanged during its meeting this week. Inflation is creeping up, as I explained when I was interviewed on Newsmax, creating pressure on the members of the Federal Open Market Committee meeting to not succumb to the urgings of President Trump to reduce rates at this time.

Paul Dykewicz predicts the Fed will leave interest rates unchanged.

Three Defense Investments with Potential to Outperform: Woods’ Wisdom

Closely tracking the defense industry is Jim Woods, a former U.S. Army paratrooper and officer who now heads the Tactical Trader advisory service and the monthly Forecasts & Strategies investment newsletter. When a stock is in a sector like defense that’s outpacing the rest of the market, and at least partly due to the Iran war and the closure of the Strait of Hormuz, then it deserves tactical attention, wrote Woods, who specializes in doing so in his Tactical Trader advisory service. He has used his military background to help select energy investments that should benefit from the rising price of oil as Iran has tried to stock normal passage of tankers that typically traverse through the Strait of Hormuz. It also led the United States to start a blockade to introduce the same shipping restriction on Iran that it is imposing on other countries.

Stocks are at a sort of “wait-and-see” moment regarding the Iran war ceasefire and what that might look like in the days ahead, Woods wrote to his Forecasts & Strategies and Tactical Trader subscribers.

“I hope things will settle and the market can get back to the bullish ways,” Woods wrote.

Upward moves have been tentative, and profits are being taken when opportunities to do so arise, Woods continued. There will be plenty of time to add new opportunities in the days, weeks and months to come, so be ready, Woods advised.

Paul Dykewicz meets with Jim Woods, head of Tactical Trader.

Three Defense Investments with Potential to Outperform: SHLD

One opportunity that Woods is recommending spreads the risk by investing in an exchange-traded fund. The Forecasts & Strategies investment newsletter that he leads has held Global X Defense Technology Fund (NYSEARCA: SHLD) since its recommendation on Jan. 5. The fund’s share price rose in one week.

With the threat of more turmoil abroad, with Iran moving from a brutal civil war to a shooting war with Israel and the United States that has calmed with a temporary ceasefire. Iran still is refusing to surrender the enriched uranium that it has developed and threated to use to destroy Israel and potentially other countries, too. The Iranian military has fired missiles at oil facilities, ships and other targets of its neighboring nations that have not supported its policies of sponsoring terror organizations seek to destroy Israel.

The fund has dipped 1.17% in the past month, but climbed 1.02% in so far this year and 31.92% during the past 12 months. Its portfolio holdings include Palantir (NASDAQ: PLTR), RTX Corp. (NYSE: RTX), Lockheed Martin (NYSE: LMT), General Dynamics (NYSE: GD), Northrop Grumman (NYSE: NOC) and L3Harris Technologies (NYSE: LHX).

Chart courtesy of www.stockcharts.com.

Three Defense Investments with Potential to Outperform: Portia Capital’s Perspective

“Investing in the defense sector for the long-term continues to make sense,” said Michelle Connell, who heads Dallas-based Portia Capital Management. “The U.S. government has committed to spend $1 trillion in 2026 and $1.5 trillion in 2027. This represents year-over-year increases of 17% and 44%, respectively.

“Now in the position of having to become independent, the rest of the developed world is trying to play catch-up with the United States’ defense spending. Geopolitical concerns have put all developed economies countries on notice that they will need to defend themselves.”

Michelle Connell heads Portia Capital Management.

Instead of trying to know each individual defense company and their unique weapon lineup, it makes sense for most investors participate in the defense sector through a strong ETF, Connell counseled. SHLD is one of those, with large weightings in the defense contract winners, she added.

“SHLD has great performance in the midst of geopolitical uncertainty,” Connell continued. “It was up over 35% in 2024, over 74% in 2025 and is up over 4% year to date. Due to its great relative performance versus the S&P, I think it would make sense to average in.”

Three Defense Investments with Potential to Outperform: LHX

L3 Harris Technologies Inc. (NYSE: LHX), of Melbourne, Florida, gave multi-year guidance in February 2026  and its management intentionally offered prospects on the lower end of what might be possible. The guidance also is less sensitive to the U.S. budget outlook due to aggressive re-prioritization of funds among capable suppliers and modern programs, Citi Research wrote.

Other factors that benefit LHX include accelerating international demand trend and the belief that Buy-rated LHX is better positioned than other prime defense contractors to appreciate as even its slowest growing segments are now expected to exceed the increase for all but the fastest-rising segments of its peers.

Citi Research wrote the management of LHX continue to make the case that the company will attain higher growth for revenue and margins than other prime contractors. The investment firm is reiterating its positive view on the stock compared with other prime contractors.

The U.S. government seldom has invested in American businesses. But the Trump administration has been willing to pursue selected direct investments that have potential to produce a profitable return for the U.S. taxpayers. As a seasoned business leader, President Trump has not been shy about using his unique background among previous U.S. presidents.

Citi Research rates LHX as a buy and wrote favorably about its trading relationships that should aid the company’s margins, returns, growth and earnings momentum. For instance, L3Harris won a contract in December 2025 from the Space Development Agency (SDA) to build 18 infrared satellites for the Tranche 3 (T3) Tracking Layer. The contract, valued up to $843 million, includes ground software, operations and sustainment functions.

But the company is not without significant risks from heavy dependence on U.S. government customers and spending priorities, Citi Research wrote. Those risks include unilateral contract actions, government shutdowns and shifts in defense budget allocations that could materially impact revenue and operations. But with drones in demand, L3 Harris could be carving out a good niche for the future.

Chart courtesy of www.stockcharts.com.

Three Defense Investments with Potential to Outperform: NN

NextNav Inc. (NASDAQ: NN) is a Reston, Virginia-based developer of a 3D geolocation service known as Metropolitan Beacon System. That capability features a wide-area location and timing technology designed to provide services in areas where the Global Positioning System (GPS) or other satellite location signals cannot be obtained reliably.

The Global Positioning System (GPS) is a U.S. government-owned, satellite-based navigation utility providing continuous positioning, navigation and timing (PNT) services worldwide. Operated by the U.S. Space Force, GPS uses at least 24 satellites in medium-Earth orbit (MEO) to determine, with high accuracy, location and time for civilian and military users.

NextNav dropped 25% soon after the House Appropriations Committee proposed a rider on April 22 to block the fiscal 2027 Financial Services and General Government (FSGG) budget from allowing the Federal Communications Commission (FCC) to reconfigure the lower 900 MHz band under a petition by NextNav. The change was proposed by Republican Rep. Steve Womack, of Arkansas, who argued the petition, if approved, would disrupt retail supply chains.

“We think the likelihood of the amendment passing is fairly low and must survive several steps left in the legislative process before being adopted into law, including a formal full House Appropriations Committee markup, final negotiations in the Senate and, lastly, White House approval,” wrote Timothy Horan, an equity research analyst at Oppenheimer.

Tests so far have not shown any interference with Radio-Frequency Identification (RFID) or other devices, Horan wrote. Regardless, the bill would not go into effect until the start of the government’s fiscal year on Oct. 1. The FCC could issue a Notice of Proposed Rulemaking (NPRM) and a Report & Order prior to that, Horan added.

Chart courtesy of www.stockcharts.com.

Three Defense Investments with Potential to Outperform: Legislative Lobbying

The Oppenheimer report further wrote that the FCC and White House recognize the national security and economic benefits of a terrestrial GPS backup/complement, which significantly outweighs the impact to legacy systems and incumbent users, Horan opined. The opposition recognizes they have largely lost the argument to the FCC/White House and are now trying to use low probability legislation to prevent the move to reconfigure the lower 900 MHz band, he added.

Rep. Womack, the Republican from the 3rd congressional district in Arkansas, sits on the House Appropriations Committee and specifically on the Financial Services and General Government subcommittee, as well as its Defense subcommittee. Arkansas is a home base of a retail supply chair that supports Walmart Inc. (NASDAQ: WMT) and Tyson Foods (NYSE: TSN).

The change in band spectrum use is opposed by five key groups: toll booth operators, “ham radio” operators, railroads, retailers and IoT/internet device vendors of garage door openers, baby monitors, smoke alarms, etc., Horan wrote. There may be some restrictions on the band use in that part of spectrum to appease opposition, with final approval delays to allow further testing, but the NPRM could still be issued shortly, he added.

“We think base case is the spectrum is worth $4 billion ($25 per share) with a bull case of about $8 billion ($50 per share),” Horan wrote. “We recognize though that, if the spectrum is not rebranded and has severe restrictions, it is likely worth $0.30 per MHz pop, or $10 per share.

“This is a normal part of the negotiating process on spectrum, and there will potentially be more of it. We recognize the biggest risk is lower power levels, but that would hurt the GPS replacement service, PNT. A backup could be needed in a terrorist or military attack.”

Three Defense Investments with Potential to Outperform: Geopolitical Risk

Seeds for the current war in Iran were planted during the 1979 Islamic Revolution, said Hugh Grossman, senior leader of the DayTrade SPY options trading room.

“The central, state-sanctioned change followed the November 4, 1979, seizure of the U.S. Embassy in Tehran and the subsequent 444-day hostage crisis, symbolizing opposition to U.S. policies,” Grossman said. “In chanting ‘Death to America,’ perhaps President Jimmy Carter should have finished off the conflict at that time, but Americans, being the patient society we are, graciously kicked the problem down the road. Decades later, Iran has developed — ironically with the financial, military and technological help from America — the means to seriously threaten us.”

President Trump had little choice but to end the “relentless threat,” not to mention the horrific slaughters the current regime inflicted upon its own people by killing tens of thousands of protestors opposing the government, Grossman commented. Geopolitical conflicts can have far-reaching effects on the stock market, he added.

“Initially, the resilient market shrugged off the first attack on Tehran,” Grossman recalled. “Where we will see the effects will be in the increased price of oil as Iran escalates its threats to shipping through the Strait of Hormuz, which carries a fifth of the world’s oil supplies, but this I expect to be short-lived. Oil increases in price, creates inflation and a threat to interest rates, which is why SPDR S&P 500 (SPY) has dropped so dramatically in the days following the attack.”

Grossman advised investors that he doubts the result will be long-term devastating effects, since the economy remains fundamentally strong with consumers and businesses driving solid economic growth. What is also different this time, compared to tightening of oil supplies in the 1973 oil embargo, is that the United States became a net energy exporter in 2001, he added.

Grossman and his partner Jon Johnson lead an options trading success rate with the State Street SPDR S&P 500 ETF Trust NYSE: SPY) of more than 83%. With the market remaining volatile, Grossman recommended the DayTrade SPY options trading room as a good alternative to investing directly in stocks.

Paul Dykewicz, www.pauldykewicz.com, is an accomplished, award-winning journalist who has written for Dow Jones, the Wall Street Journal, Investor’s Business Daily, USA Today, the Journal of Commerce, Seeking Alpha, GuruFocus and other publications and websites. Paul is the editor of StockInvestor.com and DividendInvestor.com, a writer for both websites and a columnist. He further is the editorial director of Eagle Financial Publications in Washington, D.C., where he edits monthly investment newsletters, time-sensitive trading alerts, free e-letters and other investment reports. Paul previously served as business editor of Baltimore’s Daily Record newspaper. Paul also 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. Follow Paul on Twitter @PaulDykewicz.