10 Best Defensetech for December 2025

Welcome to the Value Sense Blog, your resource for insights on the stock market! At Value Sense, we focus on intrinsic value tools and offer stock ideas with undervalued companies. Dive into our research products and learn more about our unique approach at valuesense.io

Explore diverse stock ideas covering technology, healthcare, and commodities sectors. Our insights are crafted to help investors spot opportunities in undervalued growth stocks, enhancing potential returns. Visit us to see evaluations and in-depth market research.

Market Overview & Selection Criteria

The defense and technology sectors have emerged as compelling investment territories in 2025, driven by geopolitical tensions, modernization initiatives, and the accelerating integration of artificial intelligence into defense systems. This curated watchlist combines established aerospace and defense contractors with innovative technology firms that are reshaping how nations approach security and data intelligence.

Our selection methodology prioritizes companies demonstrating strong fundamental metrics through ValueSense's proprietary analysis framework. We evaluated each candidate based on quality ratings, intrinsic value calculations, free cash flow generation, return on invested capital (ROIC), and revenue growth trajectories. The resulting portfolio spans market capitalizations from $42 billion to $395 billion, offering both stability and growth potential across the defense-technology spectrum.

Featured Stock Analysis

Stock #1: Palantir Technologies Inc. (PLTR)

Investment Thesis

Palantir Technologies stands out as the highest-quality company in this watchlist, commanding a ValueSense quality rating of 8.3—a testament to its exceptional operational efficiency and market positioning. The company has delivered extraordinary shareholder returns, with a 151.1% one-year return that reflects investor confidence in its data intelligence platform and expanding commercial applications. Trading at an intrinsic value of $20.1 per share, PLTR represents a compelling opportunity for investors seeking exposure to artificial intelligence and data analytics within the defense and intelligence sectors.[1]

The company's financial profile is remarkable for a technology firm of its scale. With $3.9 billion in annual revenue and a gross margin of 80.8%, Palantir demonstrates pricing power and operational leverage. Most impressively, the company generates $1.8 billion in free cash flow annually with a 46.1% FCF margin—exceptional for a growth-stage technology company. The 47.2% revenue growth rate combined with a 76.6% return on invested capital indicates that management is deploying capital with surgical precision, creating substantial shareholder value.[1]

Key Catalysts

• Accelerating adoption of AI-driven data platforms across government and commercial sectors
• Expanding international defense contracts and intelligence partnerships
• Growing commercial revenue streams diversifying away from government dependency
• Potential for margin expansion as the platform scales across new verticals
• Strategic positioning in emerging AI-driven defense modernization initiatives

Risk Factors

• Concentration risk with significant government revenue exposure
• Regulatory scrutiny on data privacy and surveillance technologies
• Competition from established tech giants entering the data intelligence space
• Valuation multiples dependent on sustained high growth rates
• Geopolitical shifts affecting defense spending priorities

Stock #2: RTX Corporation (RTX)

Investment Thesis

RTX Corporation, formerly Raytheon Technologies, represents the diversified aerospace and defense powerhouse with a $233.7 billion market capitalization. The company's quality rating of 6.3 reflects solid operational fundamentals, though below the elite tier. With an intrinsic value of $130.5 and a 44.3% one-year return, RTX has rewarded investors while maintaining its position as a critical supplier to both commercial aviation and defense markets.[1]

RTX's scale is unmatched in this portfolio, generating $86 billion in annual revenue with a diversified customer base spanning commercial airlines, military branches, and government agencies. The company produced $5.2 billion in free cash flow, demonstrating its ability to fund dividends, share buybacks, and strategic acquisitions. However, the 6.1% FCF margin and 20.1% gross margin indicate the capital-intensive nature of aerospace and defense manufacturing. The 8.8% revenue growth and 5.4% ROIC suggest the company is navigating a mature market while investing in next-generation technologies.[1]

Key Catalysts

• Recovery in commercial aviation demand post-pandemic normalization
• Increased defense spending on modernization and next-generation platforms
• Integration of recent acquisitions driving operational synergies
• Expansion of aftermarket services and sustainment contracts
• Potential for margin improvement through operational efficiency initiatives

Risk Factors

• Cyclical exposure to commercial aviation industry downturns
• Supply chain vulnerabilities affecting production timelines
• High debt levels (61.3% debt-to-equity) limiting financial flexibility
• Regulatory and compliance risks in defense contracting
• Competition from international aerospace manufacturers

Stock #3: The Boeing Company (BA)

Investment Thesis

The Boeing Company presents a contrarian opportunity for value-oriented investors willing to accept near-term operational challenges in exchange for potential long-term recovery. With a quality rating of 4.8—the lowest in this portfolio—Boeing reflects the market's concerns about manufacturing quality, regulatory compliance, and operational execution. However, the intrinsic value calculation of $208.7 suggests significant upside potential if the company successfully navigates its current restructuring phase.[1]

Boeing's financial metrics reveal the severity of current headwinds. The company reported negative free cash flow of $4.4 billion and a negative FCF margin of 5.4%, indicating cash burn during this transition period. The 1.1% gross margin and negative 7.9% ROIC demonstrate that current operations are destroying shareholder value. However, the 10.2% revenue growth and $80.8 billion in annual revenue indicate that demand for commercial aircraft and defense systems remains robust. This suggests Boeing's challenges are execution-related rather than structural market failures.[1]

Key Catalysts

• Successful resolution of manufacturing quality and safety issues
• Return to positive free cash flow generation
• Recovery in 737 MAX production rates and delivery schedules
• Defense contract wins and space program expansion
• Potential for significant margin recovery as operational issues resolve
• Possible strategic partnerships or restructuring initiatives

Risk Factors

• Ongoing regulatory scrutiny and potential additional compliance requirements
• Reputational damage affecting customer confidence and market share
• Execution risk on manufacturing quality improvements
• Negative cash flow limiting strategic flexibility
• Potential for further production delays or safety-related groundings
• Highly leveraged balance sheet with limited financial cushion

Stock #4: Lockheed Martin Corporation (LMT)

Investment Thesis

Lockheed Martin represents a stable, dividend-focused defense contractor with a $105.5 billion market capitalization and a quality rating of 5.5. The company's intrinsic value of $843.0 reflects its position as a critical supplier of advanced weapons systems, missiles, and space technology. However, the negative 12.3% one-year return suggests the market has repriced the stock, potentially creating an attractive entry point for long-term investors seeking defensive exposure.[1]

The company generated $73.3 billion in revenue with $4.6 billion in free cash flow, demonstrating consistent cash generation despite a challenging year. The 6.3% FCF margin and 8.2% gross margin are typical for large defense contractors operating in a competitive, regulated environment. The 2.9% revenue growth reflects the mature nature of the defense market, while the 16.3% ROIC indicates efficient capital deployment. The elevated debt-to-equity ratio of 359% warrants attention, though this is common among established defense contractors with predictable cash flows.[1]

Key Catalysts

• Increased defense spending on hypersonic weapons and advanced missile systems
• Space technology expansion and satellite constellation contracts
• International defense partnerships and foreign military sales
• Potential for dividend increases and share buybacks
• Strategic acquisitions in emerging defense technology areas

Risk Factors

• Dependence on government defense budgets subject to political changes
• Regulatory and compliance risks inherent in defense contracting
• High debt levels limiting financial flexibility for strategic investments
• Mature market growth constraints
• Geopolitical shifts affecting defense spending priorities
• Competition from other large defense contractors

Stock #5: General Dynamics Corporation (GD)

Investment Thesis

General Dynamics offers a balanced profile within the defense sector, combining solid fundamentals with attractive growth prospects. The company's quality rating of 6.4 and intrinsic value of $489.6 reflect its position as a diversified defense and aerospace supplier. The 20.9% one-year return demonstrates investor recognition of the company's operational improvements and strategic positioning.[1]

With $51.5 billion in annual revenue and $4.8 billion in free cash flow, General Dynamics demonstrates the scale and cash generation capability expected of a top-tier defense contractor. The 11.9% revenue growth significantly outpaces peers, indicating successful market share gains or strategic acquisitions. The 9.3% FCF margin and 15.3% gross margin are solid for the sector, while the 9.4% ROIC suggests reasonable capital efficiency. The 41.7% debt-to-equity ratio is moderate for the industry, providing financial flexibility.[1]

Key Catalysts

• Above-average revenue growth driven by defense modernization programs
• Potential for margin expansion through operational synergies
• International defense contracts and foreign military sales
• Strategic acquisitions in high-growth defense technology segments
• Increased demand for combat systems and advanced platforms

Risk Factors

• Government budget constraints affecting defense spending
• Regulatory and compliance requirements in defense contracting
• Integration risks from recent or planned acquisitions
• Competition from larger and smaller specialized contractors
• Geopolitical uncertainties affecting defense priorities

Stock #6: Northrop Grumman Corporation (NOC)

Investment Thesis

Northrop Grumman represents a specialized defense contractor with a $81.7 billion market capitalization and a quality rating of 5.4. The company's intrinsic value of $826.1 and 17.9% one-year return reflect its critical role in space, cyber, and advanced weapons systems. Northrop's focused portfolio on high-technology defense applications differentiates it from more diversified competitors.[1]

The company generated $40.9 billion in revenue with $1.8 billion in free cash flow, though the 4.5% FCF margin indicates capital-intensive operations. The 19.4% gross margin is among the highest in this portfolio, reflecting the specialized nature of Northrop's products and services. The flat revenue growth of negative 0.1% suggests market maturity, while the 8.8% ROIC indicates reasonable capital efficiency. The 22.7% debt-to-equity ratio is conservative for the sector, providing financial stability.[1]

Key Catalysts

• Expansion in space technology and satellite systems
• Increased cyber defense and intelligence capabilities demand
• Potential for organic growth acceleration in emerging defense areas
• Strategic acquisitions in high-growth segments
• International partnerships and foreign military sales

Risk Factors

• Flat revenue growth limiting expansion opportunities
• Government budget constraints affecting defense spending
• Regulatory and compliance risks in defense contracting
• Concentration in specialized defense markets
• Geopolitical shifts affecting space and cyber spending priorities

Most investors waste time on the wrong metrics. We've spent 10,000+ hours perfecting our value investing engine to find what actually matters.

Want to see what we'll uncover next - before everyone else does?

Find Hidden Gems First!

Stock #7: TransDigm Group Incorporated (TDG)

Investment Thesis

TransDigm Group stands out as a specialized aerospace supplier with a $79.1 billion market capitalization and the highest quality rating among mid-cap defense contractors at 6.6. The company's intrinsic value of $1,354.7 reflects its premium market position and exceptional operational performance. The modest 8.6% one-year return masks the company's consistent value creation over longer time horizons.[1]

TransDigm's financial profile is exceptional for an aerospace supplier. With $8.8 billion in revenue and $1.4 billion in free cash flow, the company generates a 15.6% FCF margin—among the highest in this portfolio. The 59.3% gross margin is extraordinary, reflecting TransDigm's focus on high-value, specialized aerospace components with limited competition. The 11.2% revenue growth and 19.1% ROIC demonstrate management's ability to acquire, integrate, and optimize aerospace suppliers for superior returns.[1]

Key Catalysts

• Continued commercial aviation recovery driving aftermarket demand
• Strategic acquisitions of complementary aerospace suppliers
• Expansion of defense-related component sales
• Potential for margin expansion through operational improvements
• International aerospace program participation

Risk Factors

• Cyclical exposure to commercial aviation industry downturns
• Integration risks from acquisition-driven growth strategy
• Supply chain vulnerabilities affecting production
• Customer concentration risk with major aircraft manufacturers
• Regulatory changes affecting aerospace manufacturing

Stock #8: L3Harris Technologies, Inc. (LHX)

Investment Thesis

L3Harris Technologies represents a mid-sized defense contractor with a $52 billion market capitalization and a quality rating of 5.8. The company's intrinsic value of $322.3 and 13.8% one-year return reflect its diversified portfolio spanning communication systems, space technology, and electronic warfare. L3Harris offers exposure to specialized defense markets with less competition than larger contractors.[1]

With $21.7 billion in annual revenue and $1.9 billion in free cash flow, L3Harris demonstrates solid cash generation with an 8.7% FCF margin. The 23.1% gross margin indicates pricing power in specialized defense markets, while the 2.8% revenue growth reflects market maturity. The 6.3% ROIC suggests room for operational improvement, while the conservative 3.7% debt-to-equity ratio provides financial flexibility for strategic investments.[1]

Key Catalysts

• Expansion in space and satellite communication systems
• Growth in electronic warfare and advanced sensor technologies
• International defense partnerships and foreign military sales
• Potential for margin expansion through operational efficiency
• Strategic acquisitions in emerging defense technology areas

Risk Factors

• Slow organic revenue growth limiting expansion opportunities
• Government budget constraints affecting defense spending
• Regulatory and compliance risks in defense contracting
• Competition from larger integrated defense contractors
• Geopolitical shifts affecting defense spending priorities

Stock #9: HEICO Corporation (HEI)

Investment Thesis

HEICO Corporation presents an attractive growth opportunity within the aerospace and defense supply chain, with a $44.2 billion market capitalization and a quality rating of 7.2—the second-highest in this portfolio. The company's intrinsic value of $97.8 and 16% one-year return reflect investor confidence in its growth trajectory and operational excellence. HEICO's focus on aftermarket aerospace components positions it to benefit from the commercial aviation recovery.[1]

HEICO's financial metrics are impressive for a mid-cap aerospace supplier. With $4.3 billion in revenue and $782 million in free cash flow, the company generates an 18.2% FCF margin—exceptional in the aerospace sector. The 40.8% gross margin reflects the high-value nature of aftermarket components with limited competition. The 13.5% revenue growth significantly outpaces peers, while the 11.5% ROIC demonstrates efficient capital deployment. The 52.6% debt-to-equity ratio is moderate for the industry.[1]

Key Catalysts

• Accelerating commercial aviation recovery driving aftermarket demand
• Continued market share gains in aerospace aftermarket components
• Potential for strategic acquisitions of complementary suppliers
• International expansion opportunities
• Margin expansion through operational leverage

Risk Factors

• Cyclical exposure to commercial aviation industry downturns
• Customer concentration risk with major aircraft manufacturers
• Supply chain vulnerabilities affecting production
• Integration risks from acquisition-driven growth strategy
• Regulatory changes affecting aerospace manufacturing

Stock #10: Axon Enterprise, Inc. (AXON)

Investment Thesis

Axon Enterprise represents the technology-focused entry point in this defense and security watchlist, with a $42.3 billion market capitalization and a quality rating of 5.9. The company's intrinsic value of $88.7 reflects its position as a leading provider of cloud-based software and hardware solutions for law enforcement and public safety. However, the negative 16.5% one-year return suggests the market has repriced growth expectations, potentially creating an opportunity for contrarian investors.[1]

Axon's financial profile reflects a high-growth technology company transitioning toward profitability. With $2.6 billion in revenue and 31.8% revenue growth, the company is expanding rapidly within the public safety technology market. However, the $145 million in free cash flow and 5.7% FCF margin indicate that growth is consuming capital. The 60.3% gross margin demonstrates strong pricing power, while the 2.9% ROIC suggests the company is still optimizing capital efficiency. The elevated 69.4% debt-to-equity ratio reflects the capital requirements of technology-driven growth.[1]

Key Catalysts

• Accelerating adoption of cloud-based public safety technology
• Expansion into international law enforcement markets
• Potential for profitability improvement as the platform scales
• Strategic partnerships with government agencies
• Margin expansion as the company achieves operating leverage

Risk Factors

• High debt levels limiting financial flexibility
• Dependence on government spending for law enforcement technology
• Regulatory and privacy concerns affecting product adoption
• Competition from established software and hardware providers
• Execution risk on profitability transition
• Valuation multiples dependent on sustained high growth rates

Portfolio Diversification Insights

This ten-stock watchlist provides comprehensive exposure to the defense and aerospace sectors while maintaining meaningful diversification across company size, business model, and growth profile. The portfolio spans from mega-cap integrated contractors like RTX $233.7B to specialized mid-cap suppliers like HEICO $44.2B, offering investors flexibility in position sizing and risk management.

Sector Allocation & Strategic Positioning:

The portfolio divides into three distinct segments. The large-cap diversified contractors (RTX, Lockheed Martin, General Dynamics, Northrop Grumman) provide stable cash flows and dividend income, representing approximately 60% of the portfolio's market capitalization. These companies benefit from long-term government contracts and international defense partnerships, offering defensive characteristics during market volatility.

The specialized aerospace suppliers (TransDigm, HEICO, L3Harris) represent the growth segment, benefiting from commercial aviation recovery and specialized defense applications. These companies typically generate higher margins and return on capital, though with greater cyclical exposure. Together, they comprise approximately 25% of the portfolio's market capitalization.

The technology-focused companies (Palantir, Axon Enterprise) represent the innovation segment, offering exposure to artificial intelligence, data analytics, and cloud-based solutions within defense and public safety. These companies demonstrate the highest growth rates and quality metrics, though with elevated valuation multiples and execution risk.

Quality and Financial Health Comparison:

ValueSense quality ratings range from 4.8 (Boeing) to 8.3 (Palantir), reflecting significant variation in operational efficiency and financial health. The highest-quality companies (Palantir at 8.3, HEICO at 7.2) demonstrate exceptional capital efficiency and growth, while lower-rated companies (Boeing at 4.8, Northrop Grumman at 5.4) face near-term operational challenges or mature market dynamics.

Free cash flow generation varies dramatically across the portfolio, from RTX's $5.2 billion to Boeing's negative $4.4 billion. This variation reflects different business models—capital-intensive manufacturing versus asset-light software platforms—and current operational status. Investors should consider their cash flow requirements when constructing positions.

Market Timing & Entry Strategies

Macro Environment Considerations:

The defense and aerospace sectors are currently benefiting from elevated geopolitical tensions, increased government defense spending, and commercial aviation recovery. These tailwinds are likely to persist through 2025 and beyond, supporting valuations across the portfolio. However, investors should monitor political changes that could affect defense budgets and regulatory shifts impacting aerospace manufacturing.

Valuation-Based Entry Approach:

ValueSense's intrinsic value calculations provide a framework for disciplined entry points. Companies trading below intrinsic value—such as Boeing ($208.7 intrinsic value) and Lockheed Martin ($843.0 intrinsic value)—may represent attractive entry opportunities for patient investors willing to accept near-term volatility. Conversely, companies trading near or above intrinsic value, like Palantir, may warrant smaller initial positions with plans to add on weakness.

Dollar-Cost Averaging Strategy:

Given the cyclical nature of aerospace and defense, implementing a dollar-cost averaging approach over 6-12 months can reduce timing risk. This strategy is particularly appropriate for higher-volatility positions like Boeing and Axon Enterprise, where near-term uncertainty may create attractive entry points.

Sector Rotation Timing:

Consider increasing exposure to this portfolio during periods of geopolitical tension or when defense spending announcements drive sector-wide rallies. Conversely, reduce exposure during periods of political uncertainty regarding defense budgets or when commercial aviation demand shows signs of weakness.

Explore More Investment Opportunities

For investors seeking undervalued companies with high fundamental quality, our analytics team provides curated stock lists:

📌 50 Undervalued Stocks (Best overall value plays for 2025)

📌 50 Undervalued Dividend Stocks (For income-focused investors)

📌 50 Undervalued Growth Stocks (High-growth potential with strong fundamentals)

🔍 Check out these stocks on the Value Sense platform for free!

More Articles You Might Like

• How VKTX (Viking Therapeutics) Makes Money in 2025: A Deep-Dive With Income Statement
• How NET (Cloudflare) Makes Money in 2025: A Deep-Dive With Income Statement
• How MASS (908 Devices) Makes Money in 2025: A Deep-Dive With Income Statement
• How CRVO (CervoMed) Makes Money in 2025: A Deep-Dive With Income Statement
• How GILD (Gilead Sciences) Makes Money in 2025: A Deep-Dive With Income Statement

FAQ Section

Q1: How were these stocks selected for this watchlist?

These ten stocks were selected based on ValueSense's proprietary fundamental analysis framework, which evaluates companies across multiple dimensions including quality ratings, intrinsic value calculations, free cash flow generation, return on invested capital, revenue growth, and margin profiles. The portfolio focuses on companies within the defense, aerospace, and security technology sectors, offering exposure to geopolitical tailwinds and government spending trends. Each company was assessed for financial health, operational efficiency, and long-term value creation potential.

Q2: Which stock from this list offers the best risk-adjusted return potential?

Palantir Technologies (PLTR) demonstrates the strongest fundamental metrics with a quality rating of 8.3, exceptional free cash flow generation (46.1% FCF margin), and outstanding return on invested capital 76.6%. However, the best choice depends on individual risk tolerance and investment objectives. Conservative investors may prefer established contractors like RTX or General Dynamics, while growth-oriented investors might favor Palantir or HEICO. ValueSense's intrinsic value calculations provide a framework for comparing risk-adjusted returns across the portfolio.

Q3: Should I invest in all these stocks or focus on a subset for diversification?

A diversified approach across multiple positions typically provides better risk-adjusted returns than concentrated bets. Consider building a core position in 4-6 stocks representing different segments: large-cap contractors (RTX, General Dynamics), specialized suppliers (TransDigm, HEICO), and technology innovators (Palantir). This approach provides sector exposure while managing company-specific risk. Position sizing should reflect your risk tolerance, with smaller allocations to higher-risk positions like Boeing and Axon Enterprise.

Q4: What are the biggest risks with these stock picks?

The primary risks include government budget constraints affecting defense spending, geopolitical shifts altering defense priorities, regulatory and compliance challenges in defense contracting, and cyclical exposure to commercial aviation demand. Boeing faces the most acute near-term risks due to manufacturing quality issues and negative cash flow. Axon Enterprise carries execution risk on its profitability transition. Investors should monitor political developments, defense spending announcements, and company-specific operational updates to manage portfolio risk.

Q5: When is the best time to invest in these stocks?

ValueSense's intrinsic value calculations suggest that Boeing, Lockheed Martin, and Axon Enterprise may represent attractive entry points given recent price declines. However, timing the market is inherently difficult. A dollar-cost averaging approach over 6-12 months can reduce timing risk while building positions. Consider increasing exposure during geopolitical tensions or defense spending announcements, and reduce exposure during periods of political uncertainty regarding defense budgets. Monitor quarterly earnings reports and management guidance for signals regarding operational trends and capital allocation priorities.