It’s been a volatile week for the defense and aerospace industry following several missives from President Trump. Some of these proposals, such as limiting defense stock buybacks and capping executive pay, are negative for the industry but seem unlikely to actually make it into law.

But the proposed increase of the Pentagon's budget seems much more based in reality, and Trump is calling for $1.5 trillion to be spent in 2027. That’s a 66% increase on the current 2026 defense budget.

While the real number is likely to be smaller, increasing the defense budget appears to be a priority, and extra spending will benefit U.S. defense contractors.

Here are five defense stocks to be bullish on for 2026.

Kratos Defense and Security Solutions Inc.

Kratos Defense and Security Solutions (NASDAQ:KTOS) exploded onto the defense scene in 2024 thanks to its innovations in unmanned systems, including drones, missiles, and satellites. The company has actually been trading on U.S. exchanges since the Dot-Com Bubble, but it wasn't until recently that the stock escaped penny stock status to become a $20 billion player in the defense sector. The company has generated more than $300 million in sales for three consecutive quarters and consistently beats analysts’ EPS projections. The stock has also already received three price target boosts in 2026, including a new Street-high $134 target from Stifel.

KTOS shares have used this early 2026 winning streak to smash through the 50-day simple moving average (SMA), which had previously been a stubborn resistance area. The breakout was confirmed by a bullish cross in the Moving Average Convergence Divergence (MACD) indicator, and the stock has now also punched through its previous all-time high from October. This rally appears to have fundamental and technical tailwinds, and more gains are likely despite the eye-popping valuation (just remember to keep those stops tight!)

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RTX Corp.

RTX (NYSE:RTX) is the aerospace conglomerate formed in the merger of Raytheon and United Technologies Corp back in 2020. Today, the new company has a market cap of nearly $260 billion and generates more than $80 billion in annual sales. RTX is also a dividend payer with a moderate valuation, trading at just 31 times forward earnings and yielding 1.4%. It also has a catalyst on the horizon with its Q4 2025 earnings report scheduled for January 27, and analysts are projecting record quarterly revenue of over $22.7 billion.

Unlike the parabolic breakout at KTOS, RTX has been a slow and steady gainer with all the hallmarks of a healthy bull run. The stock price has traded above the 50-day and 200-day SMAs since the April tariff selloff, and the 50-day has been a lightning rod for buyers ever since. RTX is a mature and reliable revenue machine, but even megacaps can be susceptible to corrections, and the Relative Strength Index (RSI) is teetering on the edge of Overbought territory. Keep an eye on this level, but remember that the long-term trend is still bullish.

L3Harris Technologies Inc.

L3Harris Technologies (NYSE:LHX) scored itself some positive press this week following a $1 billion investment promise from the Department of Defense. L3Harris plans to spin out its missile business into a separate entity with Pentagon funding, which should free up cash flow at the parent company. The new firm will have an initial public offering later in the year, and L3Harris will retain a controlling stake in the new enterprise. You'll also be shocked (shocked!) to learn that several U.S. senators serving on defense committees bought LHX in 2025.

Like KTOS, LHX shares have exploded higher as 2026 gets underway. The stock had been tightly hugging the 50-day SMA for more than six months, but now it is up more than 16% since the start of January. At one point, the stock was up another 10% on Tuesday following the Pentagon investment news, but finished the day flat as investors took profits. However, the upward momentum remains strong, driven by solid fundamentals and a bullish MACD crossover.

General Dynamics Corp.

General Dynamics (NYSE:GD) is the $97 billion defense contractor located just outside D.C. in Reston, Virginia. With its IPO back in 1962, the company is one of the oldest publicly traded defense stocks in the S&P 500, and has proven to be an income-generating machine for dividend investors. The yield is 1.66%, and the company has raised annual payouts for 34 consecutive years. The dividend payout rate is also just 38%, leaving plenty of runway for future payout boosts.

Trump hasn't favored legacy defense contractors, but the scope of the intended budget raise means large caps like General Dynamics will be needed to meet the administration's goals. GD has fundamental and technical tailwinds behind it that could see it outperform its large-cap peers. The stock trades at just 24 times forward earnings and 2 times sales, and just inked its own $900 billion deal with the U.S. Navy.

On the chart, a breakout above the 50-day SMA sparked a new wave of bullish activity, and GD has already made two new all-time highs in the first two weeks of 2026. The RSI remains under the Overbought threshold of 70 too, hinting that this rally hasn't exhausted its supply of buyers just yet.

Northrup Grumman Corp.

Northrop Grumman (NYSE:NOC) is another of the ‘usual suspects' in the U.S. defense industry, with roots dating back to the 1930s in fighter-plane developers Northrop Corp. and Grumman Corp. The two companies combined and IPOed in 1981, and today Northrop Grumman is the fifth-largest U.S. contractor by percentage of defense spending, trailing only Lockheed Martin, RTX, General Dynamics, and Boeing.

NOC shares recently broke out of a multi-month downtrend. The stock retook the 50-day SMA in a volatile week of trading, but the breakout has now been confirmed on the MACD. With the RSI still under 70, NOC could have more upside ahead from these levels. The company reports earnings on January 27 and will look to build on its Q3 2025 results, when it posted an 18% upside EPS surprise.

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