Defense stocks could gain ground this year , especially as the U.S. seems poised to continue ramping up its military operations in various regions, according to Morgan Stanley. Defense firms’ products are likely to become more essential amid rising geopolitical tensions, particularly in the aftermath of a spate of recent U.S. military actions in Venezuela and Iran, Morgan Stanley analyst Kristine Liwag said Monday in a note to clients. However, U.S. defense primes still trade at a roughly 30% discount to the S & P 500, meaning the industry’s stocks could offer attractive value for investors. “The extensive capabilities of the US Defense Primes were at the heart of both missions, underscoring, in our view, the deep value Prime systems bring to the US arsenal today,” Liwag said in the note. The firm named Northrop Grumman , on which it has an overweight rating, its top pick among defense industry stocks. Shares are up more than 33% in the past 12 months, and Northrop has a dividend yield of 1.5%. NOC 1Y mountain Northrop Grumman in the past 12 months Morgan Stanley’s other preferred plays on the theme include overweight-rated RTX , L3Harris Technologies and General Dynamics . Analysts noted that the U.S. Department of War has ramped up its spending on 3D printing to increase drone manufacturing in recent years, which could fuel defense stocks. In addition, the federal agency seems poised to hike its spending on such initiatives in 2026, giving the aforementioned names even more room to run. However, defense companies will have to adapt as the nature of war changes, particularly as adoption of artificial intelligence and other emerging technologies rises, Liwag wrote.
