Trump’s ‘Reward and Penalty’ Military Strategy: Which Stock Offers the Best Value for a $1.5 Trillion Defense Budget?

Which Defense Stock Offers the Best Value Amid Rising Military Spending?

While former President Donald Trump has made waves with his comments on stock buybacks and his suggestion of a $1.5 trillion defense budget, investors are left with a more practical question: if defense spending ramps up, which major defense contractor stands out as the most attractively valued?

Now that much of the policy speculation has settled, the focus has shifted to how Lockheed Martin Corp (NYSE: LMT), RTX Corp (NYSE: RTX), and Northrop Grumman Corp (NYSE: NOC) are priced in the market.

• Follow the latest on LMT stock.

Lockheed Martin: Strong Performance Already Reflected in Price

Lockheed Martin currently holds a market capitalization of approximately $115 billion. Its trailing price-to-earnings (P/E) ratio is close to 28, according to Benzinga Pro, which may seem steep. However, its forward P/E drops to about 17, indicating that investors are anticipating significant earnings growth as new contracts come into play.

The company’s EV/EBITDA ratio is around 17.4, placing it firmly in the category of consistent performers. This isn’t a bargain stock, but rather one that’s valued for its dependable execution, especially if production scales up as expected.

RTX: High Expectations, Little Room for Disappointment

RTX stands out as the priciest among its peers. With a market cap nearing $249 billion, a trailing P/E above 38, and a forward P/E around 28, the market is already pricing in strong future performance.

An EV/EBITDA of roughly 19 suggests confidence in the company’s size and diverse operations. However, the lower earnings yield means investors are paying a premium. Should defense budgets soar, RTX is well-positioned to benefit, but its valuation leaves little cushion for unexpected developments.

Northrop Grumman: The Value Play in Defense

Northrop Grumman emerges as the most affordable option among the three. Its trailing P/E is about 21, with a forward P/E just under 20, and an EV/EBITDA below 14—the lowest in the group. Coupled with the highest earnings yield, Northrop offers a more conservative way to gain exposure to increased defense spending, particularly in long-term and classified projects.

If the proposed $1.5 trillion defense budget comes to fruition, RTX represents the premium choice, Lockheed is the reliable performer, and Northrop serves as the value-oriented pick—where market expectations are more subdued than media attention.

Image credit: MC MEDIASTUDIO via Shutterstock

Stock Snapshot

• Lockheed Martin Corp (LMT): $514.02 (+3.45%)
• Northrop Grumman Corp (NOC): $618.10 (+2.39%)
• RTX Corp (RTX): $185.40 (-0.18%)