2 Defense Tech Stocks That Could Still Win in Periods of Stagflation

The current situation in the Middle East is causing a stir once again, bringing about a tumultuous period. While this may not be favorable for the broader economy, there are certain companies that stand to benefit from such scenarios. RTX Corporation (RTX) and Lockheed Martin (LMT) are poised to be among the biggest beneficiaries of the recent flare-up, with the Pentagon seeking $200 billion to fund it. Additionally, President Donald Trump has proposed a $1.5 trillion budget for FY2027, a significant increase from just two months ago.

Defense tech stocks have been on the rise for over two years, and with the potential of a closed Strait of Hormuz leading to global stagflation, it is time to focus on stocks that thrive in conflict situations. RTX Corporation, a major player in the defense and aerospace industry, has taken center stage amidst the ongoing Iran conflict. Formed through the merger of Raytheon and United Technologies, RTX specializes in the sale of guided missiles, air defense systems, radars, jet engines (both commercial and military), and military jet components. The demand for their products, such as Tomahawk cruise missiles and Patriot radar systems, is currently high.

David Burns, the chief investment officer at Catalyst Funds, highlighted that companies with a strong presence in missile defense systems are likely to benefit the most from increased demand. RTX Corporation fits this description perfectly. Looking back at historical precedents, the Korean War, which occurred during a period of rising inflation, demonstrated that defense stocks outperformed broader equities and bonds. With RTX’s $268 billion backlog, the company is well-positioned to weather demand shocks during stagflation.

Lockheed Martin, another key player in the defense industry, is essential for supplying the U.S. military with cutting-edge weapons. From the legendary F-35 Joint Strike Fighter to PAC-3 Patriot interceptors and THAAD missile defense systems, Lockheed Martin plays a crucial role in national defense. The company’s CEO, James Taiclet, noted a surge in demand last year, leading to a backlog of $194 billion, which is 2.5 times its annual sales.

In a landmark agreement with the Pentagon, Lockheed Martin is set to triple PAC-3 Patriot interceptor production over seven years, alongside a quadrupled production of THAAD missile defense systems. These contracts provide an inflation shield for Lockheed Martin, as a significant portion of its revenue comes from long-term contracts. This positions LMT stock as a potential winner during periods of stagflation.

As we navigate through uncertain times in the Middle East, companies like RTX Corporation and Lockheed Martin are proving to be resilient and well-equipped to thrive in conflict scenarios. It is important to monitor these defense tech stocks closely as they continue to play a pivotal role in national security and defense.