As Trump Pushes a Bigger Iran War Budget, 3 Core Defense Holdings Stand Out for Patient Investors

Key Points

Lockheed Martin still has a long runway for growth thanks to its F-35 program.

Northrop Grumman is well positioned to benefit from multiyear programs like Sentinel and the B-21.

RTX Corp. benefits from both defense demand and a long-term recovery in commercial aviation.

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President Donald Trump is pushing for a larger U.S. military budget for 2027 that could approach $1.5 trillion, up from nearly $1 trillion in 2026. The shift comes amid the Iran conflict, which is already driving higher military and operational costs, alongside emergency measures such as loans from the Strategic Petroleum Reserve and broader energy disruptions.

Lawmakers, however, are divided over how much to spend, how long the conflict could last, and how deeply the U.S. should remain involved. This uncertainty often brings renewed attention to defense stocks during periods of geopolitical tension. That does not mean investors should view conflict as an opportunity. Still, it does highlight how certain defense companies, with established programs and long-term contracts, may continue to play a critical role in national security infrastructure over time.

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Against this backdrop, here are three core defense holdings for patient investors that stand out based on their backlog visibility, technological positioning, and alignment with long-term government priorities.

Lockheed Martin

Lockheed Martin (NYSE: LMT) is well positioned to benefit from long-term U.S. defense priorities in areas such as missile defense and advanced aircraft. The company recently secured a $4.7 billion preliminary contract from the U.S. government to increase the annual production of the Patriot interceptor missile, particularly Patriot Advanced Capability-3 Missile Segment Enhancement (PAC-3 MSE).

In January 2026, Lockheed Martin entered into a seven-year agreement with the U.S. Department of Defense to increase PAC-3 production capacity from 600 to 2,000 annually. These contracts ensure multiyear and predictable demand for its PAC missiles, resulting in more efficient scaling across its supply chain. The planned increase in production capacity also provides a clear path for continued growth in Lockheed's already strong missiles and fire control business.

The F-35 program is another major growth catalyst for the company. The U.S. Department of Defense's fiscal 2027 budget request includes funding for 85 F-35 aircraft for that year alone. However, total demand from the U.S. and allied nations is about 3,500 jets. With roughly 1,200 to 1,300 aircraft delivered so far, the F-35 program is still in the early stages of a long lifecycle. Hence, a significant portion of future production, upgrades, and maintenance work is still ahead.

Lockheed also maintains strong financials. The company generated about $6.9 billion in free cash flow in fiscal 2025 and expects free cash flow of $6.5 billion to $6.8 billion in fiscal 2026. The company offers a dividend yield of 2.2% and a 23-year streak of dividend increases. The company also exited fiscal 2025 with a backlog of $194 billion, providing investors with unusually strong visibility for a business tied to multiyear defense programs.

Northrop Grumman

Northrop Grumman (NYSE: NOC) plays a critical role in strategic deterrence and next-generation defense systems. The company has exposure across all three parts of the U.S. nuclear deterrence system, which is designed to discourage other countries from attacking by threatening retaliation. It includes land, air, and sea-based capabilities.

Sentinel is one such prominent land-based deterrence program, designed to replace aging land-based nuclear missile systems, specifically the decades-old Minuteman III missiles. This program represents a multiyear opportunity for Northrop, with the U.S. government estimated to spend over $100 billion over its lifecycle. The program is also progressing toward a planned first test around 2027.

Northrop is also the prime contractor for the B-21 Raider stealth bomber, which is progressing through flight testing and moving toward scaled production. As these programs transition from development to production, they can support more predictable revenue streams.

The company is also expanding into missile defense and space systems. Missile defense now accounts for around 10% of revenue and continues to grow. Northrop also recently secured a contract to support the development of the Glide Phase Interceptor, a system designed to deter hypersonic missile threats. In space, Northrop has built a backlog of about 150 satellites for the Space Development Agency.

Northrop's financial profile is also strong. The company ended 2025 with a more than $95 billion backlog, providing multiyear revenue visibility. The company also generated about $3.3 billion in free cash flow in 2025.

RTX

RTX (NYSE: RTX) operates across both the commercial aviation and defense sectors.

On the defense side, RTX is a key player in missile systems and air defense. Its Patriot platform is a core component of integrated air and missile defense systems across 19 countries. The company also has other missile programs, such as AMRAAM and Tomahawk.

Demand for these systems remains strong and is increasingly supported by long-term procurement agreements. Much of this demand is tied to replenishing munitions and defense systems, as governments rebuild inventories following recent conflicts. To meet this demand, RTX is scaling production across these programs.

Global demand continues to expand, with NATO allies planning to raise core defense spending from about 2% of gross domestic product (GDP) to around 3.5% of GDP by 2035. Defense budgets across the Asia Pacific and the Middle East are also estimated to grow at 3% to 4% annually in the next five years. With around 47% of RTX's backlog from international customers in 2025, rising global defense spending could be a major catalyst for the company.

On the commercial side, roughly 40,000 new aircraft deliveries are expected over the next two decades. Hence, there will be significant demand for engine production and aftermarket services, driving recurring revenue.

RTX's free cash flow was exceptionally strong at $7.9 billion in fiscal 2025. The company also had a record backlog of approximately $268 billion, up 23% year over year, at the end of fiscal 2025. Hence, it has impressive long-term revenue visibility.

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Manali Pradhan, CFA has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends RTX. The Motley Fool recommends Lockheed Martin. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.