President Donald Trump has pledged to cut spending in a number of areas, but one place that's likely to see a budget increase is the Department of Defense. Increased defense spending is one of the few issues reaching bipartisan agreement in Washington, as outgoing Defense Secretary Lloyd Austin recently recommended a $50 billion boost over current 2026 projections.

As global geopolitics becomes increasingly volatile and the nature of conflicts changes, upgrades are especially needed in certain critical areas like missile defense systems, autonomous drone technology, and cybersecurity.

These five companies are set to benefit the most from the drive to modernize America’s defense.

These five stocks were chosen based on their past success with federal projects, current financial and technical standing, and likelihood of avoiding any axes from the incoming Department of Government Efficiency (DOGE).

Huntington Ingalls Industries (NYSE:HII)

Huntington Ingalls is one of the largest manufacturers of nuclear submarines and aircraft carriers, with two major manufacturing facilities in Virginia and Mississippi and a large cybersecurity and IT facility outside the Pentagon in Fairfax, VA. The company also manufactures autonomous amphibious technology, such as unmanned underwater vehicles (UUVs). 

HII stock had a rough 2024 despite a promising start. Shares hit an all-time high of $299 in early March before tumbling below $200 by the end of the year. Despite this recent decline, there's reason for optimism moving forward.

Gross profits have returned to pre-pandemic levels and the stock currently trades with a 11.2 price-to-earnings ratio, 1.84 price-to-book value, and 0.67 price-to-sales ratio; all metrics showing a cheaper valuation than competitors like Lockheed Martin, General Dynamics, and Northrop Grumman. The stock also pays a 2.74% dividend yield.

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L3Harris Technologies (NYSE:LHX)

L3Harris has been a public company for only five years, but they're already making a mark on the defense industry through innovations in command and control systems, intelligence and surveillance equipment, and navigation products for both commercial and government clients.

Formed through a merger of L3 Technologies and Harris Corp in 2019, the company is now one of the 10 largest US defense contractors and has shown impressive growth since the two original firms combined forces.

L3Harris has a loftier valuation than Huntington Ingalls, but it’s justified considering the company's revenue growth of 7.7% year-over-year, outpacing larger competitors like Lockheed and Northrop while maintaining healthy cash flow.

Last quarter, the company saw gross margins of 26.4% (far above industry average) and $5.52 billion in institutional money has flowed into the stock in the last 12 months. LHX has a $40.6 billion market cap and pays a 2.2% dividend yield. The stock chart shows upward momentum has petered out recently, but the RSI indicates it could be time to start accumulating shares again.

Palo Alto Networks Inc. (NASDAQ:PANW)

The future of defense isn't just on land, air, and water, but also online through the various information networks connecting governments and businesses all over the globe. Protecting private information is a crucial aspect for any large organization, and Palo Alto Networks has been providing cybersecurity solutions to public and private clients for nearly 20 years.

The company's main product is a line of firewalls designed to protect networks of all shapes and sizes, but it also operates Unit 42, an advance threat detection team. The FBI has credited Unit 42 with catching numerous hacking groups and cybercriminals, including the Gorgon hacking syndicate and the Xbash ransomware program.

Palo Alto Networks has a few tailwinds working for it that investors should keep an eye on. For starters, the company is a serial acquirer of smaller cybersecurity firms, with seven major acquisition announcements since 2020 (six have closed as of this writing). The incoming administration is expected to be much friendlier to merger and acquisition activity, which could greenlight Palo Alto to dig deeper into its cash horde for new companies.

Cybersecurity firms also have less capital expenditures since they aren't building ships or planes or tanks, but computer programs to protect from invisible threats. This allows companies like Palo Alto to operate leaner than traditional defense firms, and retain more of their revenue as profit.

But even compared to other cybersecurity firms, Palo Alto stands out. The company has 33% profit margins and quarterly revenue growth of 12% year-over-year.

General Dynamics Co. (NYSE:GD)

General Dynamics has roots tracing back to the Electric Boat Company in 1899, but stands today as the fifth largest defense contractor in the United States. The company manufactures five major product lines: aircraft systems like the Aardvark and Fighting Falcon, marine systems like Electric Boat and Bath Iron Works, missile systems like the Redeye and Stinger, combat systems like the M1 Abrams and LAV series, and launch vehicles like the Atlas system.

GD shares are down 11% over the last three months, but this correction could be a chance for investors to add shares. The company has grown revenue 10.4% year-over-year and has profit margins of 7.9%, higher than Northrop Grumman, RTX, and even L3Harris. Shares are trading below the 50-day moving average for the first time since October 2023, but other technical indicators show that the long-term uptrend remains in place.

Booz Allen Hamilton Holding Co (NYSE:BAH)

Booz Allen Hamilton might sound like an upscale clothing store, but it’s actually another major defense contractor, although not as well-known (or capitalized) as the big boys like Lockheed or Raytheon.

Founded at Northwestern University in 1914, Booz Allen Hamilton specializes in consulting, analytics, engineering, and cybersecurity services for governments, nonprofits, and private sector clients. The company has a $17.4 billion market cap and 1.5% dividend yield.

The BAH stock chart looks very similar to GD’s, only with a more pronounced dip. Shares are down 16% in the last three months despite consistent revenue growth and a 7.2% profit margin in the most recent quarter. Like GD shares, the stock has dipped below the 50-day moving average for the first time in over a year, but the long-term uptrend still looks strong. If defense contractors get a boost under the second Trump administration, Booz Allen Hamilton already has the stock momentum in place.

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Image via Defence.gov