3 Best Defense Stocks to Buy Now

Despite the market downturn, the best defense stocks to buy have proven resilient, as many developed nations increase their military budgets as a result of the Russia/Ukraine conflict.

Defense companies can rely on a long-standing, stable customer in the U.S. government to keep their businesses afloat and give them some predictability in managing cash flow or projecting growth trends over short-term periods.

The stability this single client provides helps ensure profitability even during economic downturns due largely to its size.

Investors know how much money will come through annually, so they don’t have to worry about sudden fluctuations. Moreover, if you read on, you’ll find that many of the top defense companies also have a growing private sector business.

The combination of both sectors and clients with deep pockets makes defense stocks interesting long-term investments.

Lockheed Martin (LMT)

Lockheed Martin (NYSE:LMT) generates the lion’s share of its sales from government contracts.

In the past couple of years, it hasn’t been able to generate attractive growth numbers. However, it seems to be reaching an inflection point with robust margins and higher deliveries over the next three to four years.

Furthermore, LMT’s management is looking to invest heavily in the business and work on limiting costs to accentuate the results of the inflection point. The results are already showing in its top-notch margin profile, which remains firmly in the green across multiple metrics.

LMT is one of its sector’s most attractive dividend stocks. It boasts over nine years of consecutive payout growth, with almost a 2.7% yield. Hence, its stellar business model, steady financials, and penchant for rewarding shareholders remain an excellent long-term bet in the sector.

Raytheon Technologies (RTX)

Raytheon Technologies (NYSE:RTX) is one of the top defense contractors worldwide. One of its key competitive advantages over its peers is its healthy exposure to the commercial aerospace sector.

It boasts a fortress of a balance sheet that continues to benefit from greater operational efficiencies and rebounding commercial aviation. Moreover, its outlook remains incredible over the long-term, “supported by the return to travel and growing global defense budgets.”

As we advance, it looks to generate 6% to 7% annualized sales growth and over $10 billion in free cash flows. It implies a spectacular FCF yield of 7.7%, unlocking significantly higher shareholder distribution. That seems like an achievable target given the strong results its been generating over the past several quarters.

In addition to its stellar dividend profile, it continues to reward investors through consistent buybacks. It repurchased shares worth over $1 billion in the second quarter alone. Its goal for the year is to repurchase $2.5 billion worth of shares.

Northrop Grumman (NOC)

Northrop Grumman (NYSE:NOC) operates a highly diversified defense operation.

It has exposure to some of the fastest-growing segments, such as space and aeronautics. Its defense systems business constitutes the least amount of company sales, but that number has grown remarkably.

The division is likely to be strengthened by the release of its B-21 Raider this year, contributing a massive $1.5 billion in revenues. Also, you have the ground-based strategic deterrent that should factor in growth in 2024.

Northrop essentially operates an incredible business model having its fingers in multiple profitable verticals in the defense niche. It’s been one of the most attractive dividend stocks in the sector, boasting 16 consecutive years of payout growth.

Northrop’s earnings report may seem unappealing, but that’s because defense-related contracts take time to materialize and involve plenty of delivery milestones before revenues can be recorded.

Its backlog has increased by 6% to a whopping $80 billion during the second quarter, a testament to its incredible long-term outlook.

On the date of publication, Muslim Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines