Top 5 Defense Stocks Hedge Funds Are Buying Now

Wall Street often chases the next big thing. Today, that might be artificial intelligence or weight loss drugs. But sometimes the smart money quietly accumulates positions in the old, steady thing. Right now, that thing is defense.

The narrative around defense stocks has been oddly muted this year. As of late October, the NYSE Arca Defense Index is up a mere 2.76%. It is dramatically trailing the S&P 500. You might think, with global tensions flaring, these stocks would soar. They have not. Budget uncertainty in Washington is a primary culprit, casting a pall over the entire sector. Investors hate not knowing how much money will flow next year.

But this creates an opportunity. The hedge funds I speak to are not looking at this quarter. They are planning for the next decade. They see a world where military inventories, depleted by years of conflict, must be rebuilt regardless of election outcomes. They see a technological arms race that demands constant investment. They are buying the sector’s giants, not for a quick pop, but for durable, long-term cash flows.

I track where these sophisticated investors park their capital. Their collective bets reveal a conviction that transcends today’s headlines. Using the latest data from Insider Monkey, which surveys hundreds of prominent hedge funds, a clear list of favorites emerges. These are the five defense stocks attracting the most smart money right now.

1. Lockheed Martin holds the fifth spot. 75 hedge funds held the stock in the second quarter. That is down from 83 the prior quarter, a sign of the sector’s broad caution. The caution had a basis. First quarter results disappointed. F-35 deliveries are slower this year. The underlying business is proving resilient. Third quarter net sales hit $20.7 billion, an 11% year-over-year increase. Earnings jumped to $7.97 per share. Both figures beat Wall Street estimates. Lockheed responded by raising its full-year guidance. The demand signal is unmistakable. Just after the earnings report, the company secured a landmark 10-year agreement with the Pentagon. The deal is for at least 850 F-35 jets and carries a potential value of nearly $78 billion. That is not a one-off order. It is a decade of visibility.
2. TransDigm Group ranks fourth. 83 hedge funds held positions. This company is a critical but less visible player. It makes proprietary aerospace components. Think actuators, controls, and ignition systems for both commercial and military aircraft. Its business model is powerful. Once its parts are on a plane, it generates high-margin aftermarket revenue for years. The latest numbers show this model in full force. Third quarter sales grew 23% to $2.74 billion. Its adjusted earnings per share reached $10.87. Most impressively, its EBITDA margin stood at a staggering 52.8%. This profitability is why funds like Soroban Capital Partners have built a $1.19 billion stake. Management lifted its full-year forecast. They see the momentum continuing.
3. Boeing takes the third position. 90 hedge funds are invested. Boeing is the ultimate recovery story with a massive defense backbone. Its commercial plane troubles dominate headlines, but its defense unit is quietly performing. Defense revenue grew 15% year-over-year last quarter to $7.9 billion. The segment’s operating margin expanded to 6.2%. The unit’s backlog hit a record $101 billion. Nearly a quarter of those orders come from outside the United States, showcasing global demand. A major catalyst is on the horizon. The U.S. Navy selected Boeing to develop the F/A-XX, a next-generation fighter aircraft. This program is not yet in the official backlog, but it represents future billions. Of course, caution is still required. Boeing reported a net loss last quarter, and executing on its enormous $745 billion total backlog remains a monumental task.
4. RTX Corporation is second. 92 hedge funds hold shares. RTX offers a unique blend. It is a pure-play on both commercial aerospace rebound and sustained defense spending. Third quarter revenue rose 11% to $25 billion. Adjusted earnings per share surged 33% to $2.26. The company’s total backlog is now a record $340 billion. New orders tell the story of demand. In the third quarter alone, RTX booked $81 billion in new business. That included two blockbuster missile awards. One was a $20.7 billion contract for its AMRAAM missiles. The other was a $22.9 billion deal for Tomahawk cruise missiles. These are multi-year production contracts. They provide a foundation of predictable revenue that hedge funds find deeply attractive.
5. GE Aerospace is the most popular defense stock among hedge funds. 113 funds held a stake. GE is not a traditional weapons maker. Its power is in propulsion. It has an installed base of roughly 30,000 military engines. These engines generate recurring, high-margin service revenue for decades. That is the kind of predictable cash flow institutional investors covet. The financial results are robust. Third quarter adjusted revenue jumped 18% to $13.3 billion. Orders soared 49% to $19 billion. The company raised its full-year guidance for the second time this year. Its defense-specific segment, Defense & Propulsion Technologies, saw revenue grow 7% last quarter. Orders for the segment climbed 18%. Management anticipates low double-digit revenue growth for the defense unit this year.

The common thread here is not speculation on a single conflict. It is a cold assessment of structural demand. Budgets may fluctuate, but the direction is higher. Inventories need replenishing. Technological edges must be maintained. The hedge funds piling into these names are betting that these companies will be the primary beneficiaries. They are buying the plumbing of modern defense, the engines, the components, the missiles, and the aircraft. That is a bet on the world as it is, not as we wish it to be.