Top 3 Defense Stocks as the Iran War Continues

Rising tensions in the Middle East are drawing attention to companies that build military equipment. Following the U.S.–Israeli strikes on Iran under Operation Epic Fury, investors are increasingly looking at defense contractors that produce missiles, aircraft, and advanced weapons systems. Historically, conflicts and geopolitical uncertainty often lead governments to increase military spending.

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As a result, companies that supply defense technology can see stronger demand and long-term contract growth. Below are three defense stocks that appear well-positioned to benefit if tensions continue to rise.

**1. Lockheed Martin LMT -0.50% ▼ **

Lockheed Martin is the largest defense contractor for the U.S. government and plays a major role in producing advanced military systems. More specifically, the company manufactures the F-35 stealth fighter jet, which has become one of the most widely used aircraft among NATO allies. In addition, recent reports that Germany may purchase additional F-35 jets have helped boost investor interest in the stock.

From a business standpoint, the company ended 2025 with a massive $194 billion backlog, meaning it already has years of orders lined up. Impressively, that backlog equals roughly two and a half times its annual revenue, which reached $75 billion after growing by 6% last year. Much of that growth came from strong deliveries of F-35 jets and missile defense systems. Going forward, Lockheed is expected to increase production of PAC-3 MSE interceptor missiles, with output planned to jump from 600 missiles per year to around 2,000.

**2. RTX RTX +1.11% ▲ **

Another major defense contractor that could benefit from rising military activity is RTX, the parent company of Raytheon. Indeed, the firm produces the Tomahawk cruise missiles that were reportedly used during the recent strikes on Iran. Because of this demand, Raytheon is now working with the Pentagon to increase production to as many as 1,000 Tomahawk missiles per year.

RTX has also been delivering strong financial results. In 2025, the company reported $88.6 billion in sales, while its order backlog reached a record $268 billion, up 23% from the previous year. Interestingly, nearly half of that backlog comes from international customers.

**3. Kratos Defense KTOS +0.20% ▲ **

Separately, while Lockheed and RTX dominate the traditional defense market, Kratos Defense focuses on newer technologies such as military drones, rocket systems, and space hardware. Importantly, the company has recently attracted attention as investors anticipate an increase in demand for unmanned aerial vehicles (UAVs) and advanced weapon systems.

Looking ahead, the company plans to increase the production of its Valkyrie combat drone by targeting around 40 units per year by 2027. In addition, Kratos expects revenue from its hypersonic weapons business to double to about $400 million in 2026.

Which Defense Stock Is the Better Buy?

Turning to Wall Street, out of the three stocks mentioned above, analysts think that KTOS stock has the most room to run. In fact, KTOS’ price target of $116.93 per share implies 31.2% upside potential.

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