Top Defense Stocks to Watch as Venezuela and Iran Tensions Rise
Defense stocks benefit from times of war and conflict. We've seen it time and time again in recent history... And history is repeating itself as we speak.
Shortly after the U.S. government invaded Venezuela and captured President Nicolás Maduro and his wife on Saturday, January 3, global defense stocks soared.
On Monday, January 5:
- German defense companies Rheinmetall, Hensoldt, and Renk each gained roughly 8%.
- Saab, a Swedish fighter jet manufacturer, rose 6%.
- Japan's IHI and Mitsubishi Heavy Industries each surged about 9% and 8%, respectively.
- In the U.S., Lockheed Martin (LMT) and Northrop Grumman (NOC) gained more than 2% and 4%, respectively. And the iShares U.S. Aerospace & Defense Fund (ITA) hit a new intraday record when it increased 2%.
Between the military strike in Venezuela and increasingly heated rhetoric between the U.S. and Iran, tensions are high. When tensions are high, the fear of escalating conflict and war sets in.
These periods can be uncertain, even frightening. We're in a world where there's plenty to worry about – including financially. But we do know one thing...
Defense companies around the world tend to reap the benefits during these times. And so do those who invest in the right defense stocks.
Why Geopolitical Risk Pushes Investors Toward Defense Stocks
Defense companies don't rely on traditional consumer spending to make money. Their revenue is driven by government-backed demand.
The logic is simple. When the geopolitical climate is more fragile than usual – as it is now – governments pour more cash into military readiness. They raise their defense spending to prepare for worst-case scenarios.
And that drives defense companies' stocks higher.
Even when the broader market experiences volatility, defense stocks are generally considered a "safe haven" for investors. And it's not just because they thrive on uncertainty...
It's also because they're typically backed by government funding and long-term contracts. That creates a lot of stability. So investors turn to defense stocks for steady returns, regardless of how other industries are performing.
We've seen this play out many times. It happened with:
- Boeing (BA) and General Electric during the Cold War
- The entire defense industry during the wars in Iraq and Afghanistan
- Lockheed, Northrop Grumman, and General Dynamics (GD) at the start of the Israel-Hamas conflict
- The global defense industry again, when Russia invaded Ukraine
And, in the aftermath of the U.S. military operation in Venezuela, investors have followed this same pattern.
How Venezuela and Iran Are Shaping Market Sentiment
The January 3 overthrow of Maduro was months in the making. Beginning in late summer 2025, the Pentagon increased American military presence near Venezuela. Notably, it also began destroying Venezuelan boats (which it alleged were carrying illegal drugs) in the Caribbean.
Near the end of 2025, the U.S. military launched a drone strike on a Venezuelan port. It all culminated in the arrest of Maduro and his wife, who were brought to the U.S. to stand trial.
This sequence of events demonstrated that the U.S. was willing to use force in taking down what the Trump administration says is one of the largest "narco-terrorist" groups in the world.
Not surprisingly, the aggressive moves caught the attention of Iran... a country with a historically complicated relationship with the U.S.
Iran quickly condemned the Venezuelan strike, likely out of fears that similar events could take place in Tehran. Iran already has tensions at home to worry about, as nationwide anti-government protests have stretched into their second week – setting off an Internet blackout on Thursday night.
A major difference between Venezuela and Iran? Iran has a nuclear weapons program.
While the country doesn't currently possess any war-ready nuclear weapons, it does have a stockpile of enriched uranium (a violation of international agreements). And the U.S. and its allies generally believe that Iranians are capable of quickly constructing nuclear weapons if the need arose.
That alone is enough to put other countries on high alert... which is enough to make the market respond. It's not only actual military events that move the needle. It's also the possibility of escalation that sends investors scurrying toward defense stocks.
And as tensions rise, the market expects major growth ahead for these companies. Let's look at three of the top defense stocks that stand to benefit during the latest conflict...
Top U.S. Defense Stocks Positioned to Benefit
Lockheed Martin (LMT)
Long considered the defense-industry bellwether, Lockheed Martin is the world's largest defense company by sales.
Analysts watch this firm closely during earnings season. Lockheed is so successful and well respected that its stock performance usually reflects the geopolitical climate.
And it's easy to see why. Lockheed, a core supplier of fighter jets, air defense systems, missiles, and more, is incredibly reliable. Nearly 74% of Lockheed's sales are long-term government contracts... specifically with the U.S. Department of Defense ("DoD").
New hostilities have erupted between Israel and Iran. And most recently, at a summit last week, NATO made a landmark agreement to raise military spending. Most European countries said their defense spending would rise to 5% of national income over the next 10 years.
So, if you're an investor, you might be looking for the best war stocks to buy during these uncertain times. And Lockheed Martin consistently rises to the top of the list.
From iconic stealth aircraft to cutting-edge missile systems, Lockheed has not only shaped modern warfare... It has also built a fortress of profitability, thanks to its unrivaled relationship with the U.S. government.
And in a world where geopolitical risk is rising, Lockheed stands as one of the most reliable military stocks to buy.
Our proprietary Stansberry Score, which gauges the long-term investment quality of a stock based on multiple factors, reinforces that statement. Out of nearly 4,600 stocks we track, LMT ranks within our top 350, with a stellar overall "A" grade.
Lockheed hits outstanding marks in all areas. It earns a "B" in financials, thanks to its $179 billion backlog and a projected $74 billion to $75 billion in 2025 full-year revenue. It also gets an "A" in capital efficiency and a "B" in valuation.
For investors, Lockheed Martin is the surest way to profit from the defense sector.
General Dynamics (GD)
General Dynamics is a company with a long history. It has been a continuous contractor with the American government and/or military for 125 years.
General Dynamics designs and builds nuclear-powered submarines, surface combatants, and auxiliary ships for the U.S. Navy. It also manufactures land combat vehicles, weapons systems, munitions, tactical vehicles, battle tanks, and armored vehicles for the military.
Along with warfighting equipment, General Dynamics also provides technology and mission support services, including intelligence, surveillance, and reconnaissance ("ISR") solutions to intelligence agencies and the military.
As of 2024, 69% of the company's revenue came from the U.S. government, a number that rivals Lockheed Martin.
Bolstered by its government contracts, General Dynamics posted strong financials in Q3 2025:
- $12.9 billion revenue, a 10.6% increase from Q3 2024
- A record $109.9 billion backlog
- $3.88 EPS, which exceeded expectations
- $2.1 billion net cash
General Dynamics also raised its full-year revenue guidance to $52 billion, driven in part by the record backlog of defense orders.
Our Stansberry Score gives General Dynamics an overall "A." It's one of the top 300-or-so stocks out of nearly 4,600 we follow.
Its capital efficiency and valuation both earn solid "B" grades. But its financials, as noted, are outstanding. Not only does General Dynamics get an "A" for financials, but it ranks well within our top 100 tracked stocks in that category.
Northrop Grumman (NOC)
Northrop Grumman, also headquartered in Northern Virginia, is probably best known for its advanced aircraft... particularly the B-2 Spirit stealth bomber, the E-2 Hawkeye, and the F-14 Tomcat.
But Northrop Grumman also produces defense electronics, such as missile defense, which is in high demand given America's brewing conflicts with Venezuela and Iran.
Like other defense stocks, Northrop's shares got a bump after the Venezuela strike. If tensions boil over with Iran, you can bet shareholders will reap the benefits as they have during past escalations with Iran.
While not quite as strong overall as Lockheed or General Dynamics, Northrop's stock is another strong performer. As you can see from our Stansberry Score, NOC places well within our top 1,000 stocks with a solid "B" overall grade.
Northrop's "A" grade for financials drives its overall score. The company's expected 2025 revenue of $41.7 billion to $41.9 billion barely missed expectations in its most recent earnings report. But it increased its EPS guidance above earlier estimates. Plus, Northrop's backlog reached an impressive $91.4 billion by the end of Q3 2025.
We see NOC's valuation as middle of the pack with a "C" grade. But its capital efficiency scores a strong "B," thanks largely to a huge uptick in free cash flow ("FCF"). Its Q3 2025 FCF jumped to $1.3 billion, up 72% from Q3 2024.
But it takes more than steady free cash flow to be a capital-efficient company. Northrop checks plenty of boxes by focusing its strategy on high-margin defense and aerospace programs. And it takes care of its shareholders through share buybacks, helping elevate its EPS while delivering value to its investors.
Not everyone is a fan of share buybacks from defense stocks, though. And that could present a problem...
President Trump Just Threatened U.S. Defense Companies. Will That Impact Defense Stocks?
Between 2021 and 2024, the top four defense contractors in the industry paid out around $89 billion in stock buybacks and dividends. That group includes all three of the companies we just covered, plus RTX (RTX).
Investors love it. But it doesn't sit well with President Trump.
Trump sent out a blistering series of threats and warnings via Truth Social on Wednesday, January 7. Here are the highlights...
All United State Defense Contractors, and the Defense Industry as a whole, BEWARE: While we make the best Military Equipment in the World (No other Country is even close!), Defense Contractors are currently issuing massive Dividends to their Shareholders and massive Stock Buybacks, at the expense and detriment of investing in Plants and Equipment. This situation will no longer be allowed or tolerated!
Trump wasn't done...
Therefore, I will not permit Dividends or Stock Buybacks for Defense Companies until such time as these problems are rectified... MILITARY EQUIPMENT IS NOT BEING MADE FAST ENOUGH! It must be built now with the Dividends, Stock Buybacks, and Over Compensation of Executives, rather than borrowing from Financial Institutions, or getting the money from your Government.
Unsurprisingly, defense stocks took a major hit immediately after these posts. Northrop's shares dropped by more than 5% by market close. Shares of Lockheed and General Dynamics each fell lost more than 4%.
But later that day, Trump proposed an extra $600 billion in military spending. This would raise the defense budget to $1.5 trillion in 2027.
Guess what happened...
Lockheed rallied 4% the next day, eliminating its previous day's loss. General Dynamics and Northrop each rose 2%.
What will Trump do next? Will he follow through on the threats to the defense companies? Only Trump and his administration know.
But these new developments are worth monitoring if you're considering investing in American defense companies.
This industry comes with other pros and cons, too. Here's what investors need to know...
The Benefits and Risks of Buying Defense Stocks
As with all kinds of investing, buying defense stocks has both benefits and potential drawbacks. You just read about a few of them. Let's look at some more...
Benefits
- Predictable revenue: Defense companies, especially the ones we've examined today, enjoy long-term government contracts that deliver predictable revenue for several years.
- Long-term reliability: Because of those contracts and steady revenue, defense stocks can often withstand volatile markets.
- Geopolitical climate: Defense stocks reliably benefit from tension across the globe. As countries increase their defense spending, these companies' revenues increase. This also makes them a safe-haven asset.
- Limited competition: Due to the highly specialized and regulated nature of defense products and technologies, it can be challenging for new businesses to break into the industry. This limits the competition to a handful of established companies.
- Innovation: Defense companies employ brilliant minds who are consistently on the cutting edge. This often results in new products and technologies that appeal to their customers.
Risks
- Over-reliance on contracts: Defense companies benefit from long-term contracts. But what happens if a contract is canceled... or the government slashes the defense budget? Those overwhelming sources of revenue can take a major hit if something goes wrong.
- Government involvement: The government is unpredictable. And any announcements can immediately impact defense-stock prices. President Trump's latest social media tirade is a prime example.
- Overvaluation potential: Defense-stock prices spiked when news of the Venezuela operation surfaced. Those types of events often artificially inflate share prices. And when geopolitical sentiment inevitably shifts again, defense stocks tend to fall sharply.
While defense stocks are in good position today, it only takes one social media post, an act of hostility, or a peace accord to dramatically alter the landscape. This is something to keep in mind when investing.
Bottom Line: Defense Stocks Shine in an Era of Global Uncertainty
Back in 2023, at the start of the Israel-Hamas war, Brett Eversole – editor and lead analyst of our True Wealth, True Wealth Systems, and DailyWealth newsletters – captured the complicated dynamic of war and the market...
War is always tragic. That's by far the most important concern. It affects all of us as human beings. But from an investment standpoint, war also raises other fears and doubts.
What will be the downstream effects? Will this war spiral into a larger global conflict? Will the geopolitical world – and, thus, the economic world – change as a result?
We can't know the answers for certain. But you should know one thing as an investor... The market doesn't always work the way we expect. And that matters when it comes to these financial worries.
As Brett went on to explain, wars usually don't lead to a market crash. History shows that stocks have rallied even in geopolitical crises.
With a U.S. takeover of Venezuela and simmering tensions with Iran, the world is in a state of uncertainty today. But that doesn't mean we should run for the exits as investors.
The overall market will likely weather the storm just fine. And the defense sector is set up to soar as governments invest in the military.
Like it or not, defense contractor stocks feed off not just war itself, but also the potential for war... And there's always potential for war. That's what makes U.S. defense stocks reliable and resilient.
Regards,
David Engle
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