Three Defense Stocks to Buy as NATO Agrees to Boost Spending

07/01/2025

Three defense investments to buy as NATO agrees to boost spending to 5% of GDP by 2035, with a floor of 3.5% earmarked for “core military needs,” more than doubling the previous 2% target set back in 2014.
That heightened defense spending could become a significant growth driver for many defense companies around the world. NATO’s plan for increased military spending harkens back to President Reagan’s administration when he championed more than doubling the U.S. military budget from under $150 billion in 1980 to $300 billion-plus by 1985.
The U.S. government invested heavily in B-1 bombers, missiles and an expanded Navy fleet, as well as launched the Strategic Defense Initiative (SDI), also called “Star Wars” by skeptics, aimed to create a space-based missile defense system. The 40th president believed that peace needed to be achieved through strength, and history proved him right, wrote Frank Holmes, the CEO and chief investment officer of U.S. Global Investors (NASDAQ: GROW).
Three Defense Stocks to Buy as NATO Agrees to Boost Spending: Outspend Rivals
The Americans outspent the Soviets and proved to be more innovative… ultimately outlasting them, Holmes continued. President Reagan’s strategy played out on the international stage in the last week at the NATO summit in The Hague.
NATO Secretary-General Mark Rutte praised U.S. President Donald Trump with pushing America’s allies to commit to a higher spending level.
“This would not have happened” without Trump,” Rutte said.
Trump echoed Reagan’s “peace through strength” energy by saying it is vital that this additional money be spent on “very serious military hardware,” … and hopefully that hardware is going to be made in America because we have the best hardware in the world.”
Three Defense Stocks to Buy as NATO Agrees to Boost Spending: PLTR
Denver-based Palantir Technologies (NASDAQ: PLTR), recommended in TNT Trader on April 8, has jumped more than 61.29% since then. Palantir is a software company that operates largely outside of the tariff fallout and recently announced a deal with NATO to supply it with the company's Maven AI software.

Mark Skousen leads the TNT Trader advisory service and Forecasts & Strategies.
The stock also is a recommendation of the Investing Edge newsletter led by Jim Woods, a former Army paratrooper. The stock is up 72.79% since Jan. 1. Woods recommended the position in January in his Investing Edge publication, allowing his subscribers to be up substantially in the position even when the market dipped.
Paul Dykewicz meets with Jim Woods, who heads Investing Edge 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 in 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. Its technology enhances the preparedness of soldiers who use wearable sensor and mobile technologies in the battlefield.
But the huge 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 appreciate knowing 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.
Before Woods launched the Investing Edge newsletter early in 2025, he served as a former Army officer 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 a 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, according to Palantir. The company's goal is to empower commanders to make sense of a complex battlefield, requiring ground systems to aid understanding.
Chart courtesy of www.stockcharts.com

Three Defense Stocks to Buy as NATO Agrees to Boost Spending: LMT
Lockheed Martin (NYSE: LMT), of Bethesda, Maryland, is a defense and aerospace company that resulted from a 1995 combination between Lockheed Corporation and Martin Marietta Materials, Inc. In its current form, Lockheed Martin focuses on defense, space, intelligence, homeland security and information technology. LMT is another Citi Research buy.
The company’s key business segments are Aeronautics, Missiles and Fire Control (MFC), Rotary and Mission Systems (RMS) and Space. Lockheed Martin’s management recently laid out the case that margins are likely to trough in 2024 and drift toward 11%-plus over time, driven largely by product mix.
The loss-making classified contract at Lockheed Martin’s MFC business will be a tailwind in 2025, i.e., lower forward loss charges, while the rest of the margin accretive MFC portfolio is likely to grow faster than the remainder of the company. Further, new awards across the company better reflect the current cost environment and should produce margins higher than pre-pandemic backlog, according to a Citi Research note.
Chart courtesy of www.stockcharts.com
“Defense will continue to be a big business,” said Michelle Connell, who heads Portia Capital Managment in Dallas. Connell is recommending Lockheed as a buy and the President's May 20 announcement about the golden dome is one of her reasons.
According to the Stockholm International Peace Research Institute, (SIPRI), 2024 world military expenditures reached $2718 billion. That's an increase of 9.4% from 2023 and the largest year over year increase since the end of the Cold War. Military spending is increasing globally, but most especially in Europe and the Middle East.
For context, for the current year, the United States has budgeted $895 billion. Second runner-up is China with $267 billion. 3rd runner-up is Russia with $126 billion.
Given the above backdrop, investing in the defense sector has a high probability that it will continue to be profitable, Connell said. This year, LMT made it clear that they are going to target increasing their growth in Europe, he added.
"The company is well known for its F-35 aircraft and LMT's management is confident that they will be able to deliver its 2025 goals for this product line," Connell told me. "When Trump signed his recent $142 billion deal with Saudi Arabia, F-35s were not mentioned. It will be interesting to see how this develops."
While LMT recently lost its F47 contract to Boeing, management has stated that they believe that this revenue will be made up elsewhere, Connell said.
Michelle Connell heads Portia Capital Managment
Three Defense Stocks to Buy as NATO Agrees to Boost Spending: BAE
London-based BAE Systems PLC (OTCMKTS: BAESY) is a multinational arms, security and aerospace company that should benefit from NATO nations' commitment to more than double spending in the next decade. Due to Europe's rearmament cycle, Wall Street analysts have lifted their average defense stock target prices by 25%, said Connell, the Chief Investment Officer and owner of Dallas-based Portia Capital Management.
Many European countries have publicly declared their increase in defense spending. Those countries include Denmark, the United Kingdom and Germany.
“Due to a lag in contract negotiations and earnings’ revisions, the full potential of these names may not be realized until at least six months from now, Connell continued.
The investment firm JP Morgan wrote in a research note that it expects revenue estimates to increase by at least 10% for these EU defense companies. One of the EU sovereign funds is removing its prohibition of investments in defense companies, Connell commented. A European politician questioned how governments can increase defense spending, but their sovereign funds are not allowed to invest further in these companies.
“In February 2024, BAE acquired Ball Aerospace to add to its space mission product line," Connell continued. "These synergies should assist BAE in reaching its 10% sales growth target starting this year."
On July 1, BAE announced the second tranche of its 1.5 billion pound share buyback. The first tranche, initiated in 2023, totaled 500 million British pounds. The second tranche of 500 million pounds is slated for completion by June 2026. That will leave one additional tranche of 500 million pounds for the future.
“This repurchase program increases BAE's opportunity for share appreciation,” Connell said.
Chart courtesy of www.stockcharts.com

Unpredictable Geopolitical Risk
Geopolitical risk remains high. We are a little more than one week away from the United States bombing three nuclear development sights in Iran in an attempt to thwart development of enriched that could be used to deploy nuclear weapons. The Republican-led U.S. Senate rejected a Democrat-driven plan to block President Donald Trump from using further military force against Iran, hours after the president said on Friday, June 27, that he would not rule out further bombing. The Senate voted 53 to 47 to defeat a war powers resolution that would have required congressional approval for more military action against Iran.
At the same time, war keeps raging in Ukraine as Russia intensifies its attacks against its neighboring nation. Investors can take extra protection for potential fallout from the wars by holding shares in the three defense stocks to buy as NATO agrees to boost spending.
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, who can be followed on Twitter @PaulDykewicz, is the editor of StockInvestor.com and DividendInvestor.com, a writer for both websites and a columnist. He further is 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. The book is great as a gift and is endorsed by Joe Montana, Joe Theismann, Ara Parseghian, “Rocket” Ismail, Reggie Brooks, Dick Vitale and many others. Call 202-677-4457 for multiple-book pricing.

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