To help you understand what's going on in business and the economy and what we expect to happen in the future, our highly experienced Kiplinger Letter team will keep you abreast of the latest developments and forecasts (Get a free issue of The Kiplinger Letter or subscribe). You'll get all the latest news first by subscribing, but we will publish many (but not all) of the forecasts a few days afterward online. Here’s the latest…

Although the Iran war clouds the horizon, the aerospace industry remains optimistic about 2026. Aircraft demand — civilian and defense — remains robust and could even see a significant boost because of the conflict. However, major risks abound.

On the civilian aircraft side of the business, Airbus and Boeing both have big ambitions that will run up against ongoing supply chain issues, technical difficulties and more. Airbus, for example, may struggle to meet its 870-jetliner delivery target amid problems with engine supplier Pratt & Whitney and long lead times for some materials, such as steel. Boeing’s output is still capped at 42 jets per month by the Federal Aviation Administration. While the company has experienced a major turnaround in recent years, ongoing problems with its flagship 737 Max aircraft could delay a long-awaited return to profitability.

The industry could surpass its 2019 peak in aircraft deliveries if both get their acts together. With its current 55% market share, Airbus is expected to maintain the lead. But Boeing has an opportunity to stage a comeback. Last year was the first since 2018 that Boeing received more new orders than Airbus. Analysts say a new single-aisle jet to replace the 737 Max could further narrow the gap with Boeing’s European rival.

Bad times spell even more business for manufacturers of military aircraft. Lockheed Martin’s F-35 remains the world’s top-selling fighter jet. Meanwhile, Boeing has given its defense business a boost by landing a next-generation fighter contract. The so-called F-47 is on track to fly in 2028, with 185 orders already on the books.

The current foreign policy landscape also contains some major red flags for American defense contractors, who have long led the industry. Many countries are developing alternatives to United States-made and -designed aircraft, the most notable of which is the Global Combat Air Programme, a joint effort by the United Kingdom, Italy, Japan and maybe Canada. Its next-generation fighter jet may one day rival Lockheed’s F-35, especially if the current tensions persist between Washington and its longtime allies.

The Iran war remains a major wild card. Commercial aircraft manufacturers aren’t concerned about the near-term effects of the conflict. Only 6% of the 1,350 jets that Boeing and Airbus expect to deliver this year are destined for the Gulf states, whose carriers would be among the first to alter their fleet plans. Over the long term, Middle Eastern buyers account for 10% of deliveries through the end of the decade.

The longer the conflict, the greater the fallout. Elevated jet fuel prices could crimp travel demand and prompt airlines to defer deliveries of new aircraft. Airlines won’t be quick to cancel orders, given years of pent-up demand. More likely, the war will cause them to retire older jets in favor of newer, more fuel-efficient ones.

This forecast first appeared in The Kiplinger Letter, which has been running since 1923 and is a collection of concise weekly forecasts on business and economic trends, as well as what to expect from Washington, to help you understand what’s coming up to make the most of your investments and your money. Subscribe to The Kiplinger Letter.

Read more

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To help you understand what's going on in politics, the economy and what we expect to happen in the future, our highly experienced Kiplinger Letter team will keep you abreast of the latest developments and forecasts (Get a free issue of The Kiplinger Letter or subscribe). You'll get all the latest news first by subscribing, but we will publish many (but not all) of the forecasts a few days afterward online. Here’s the latest…

A big shift in economic policy is underway. One that includes more federal involvement in parts of the private sector that were once off-limits. The shift began in Donald Trump’s first term. Now, the president is attempting to cement it.

Among the steps that Trump has taken so far:

Making the government a major shareholder of so-called national champion firms, such as Intel and U.S. Steel, to shore up the manufacturing base. Both companies have lost ground in recent decades, even with extensive efforts to engineer a turnaround. The administration has also floated taking a big stake in major defense contractors, such as Lockheed Martin.

Establishing more public-private partnerships in sectors critical to national security.
One example: A multibillion-dollar agreement with MP Materials to create a mine-to-magnet rare earths supply chain.

Imposing and threatening higher tariffs, hoping to strong-arm supply chains back to the U.S. Case in point, biopharma — one of the many industries facing higher duties — has pledged at least $292 billion to expand U.S. manufacturing in the past six months.

Most of the president’s moves have a national security angle.
The decline of the U.S. manufacturing base is one of Trump’s long-running concerns. Moreover, he has so far focused primarily on industries where ongoing competition with China is a concern. Beijing now dominates “traditional” manufacturing industries like steel and is increasingly making advances in high-tech areas, including semiconductors.

His policies are also limited to where the White House has clear leverage, such as extensive federal subsidies (Intel) or a pending merger approval (U.S. Steel). The big question now is how far the administration ultimately plans to go. For now, it’s signaling clear limits in its intentions, focusing mostly on manufacturing. Case in point, federal officials say that they have no plans to take a stake in Nvidia, a chipmaker, which, unlike Intel, outsources all of its manufacturing to other firms.

The risk of a legal backlash grows if Trump pushes further. For example, if the administration begins to regularly require companies to give Uncle Sam shares as a condition of receiving government contracts, as well as permits and licenses, lawsuits are highly likely. The White House could see its strategy blow up sooner than that if the courts nix its current authority to impose across-the-board tariffs.

Also unclear: How effective this strategy will be. Intel will be a key test case. More federal involvement could help the struggling chipmaker land more customers, or it could worsen the company’s long track record of corporate mismanagement.

Trump’s policies are not unprecedented, but their permanence is unusual in modern times. For example, Uncle Sam temporarily took ownership of GM in 2009.

This forecast first appeared in The Kiplinger Letter, which has been running since 1923 and is a collection of concise weekly forecasts on business and economic trends, as well as what to expect from Washington, to help you understand what’s coming up to make the most of your investments and your money. Subscribe to The Kiplinger Letter.

Read more

• Breaking China's Stranglehold on Rare Earth Elements
• How Do Tariffs Impact the Stock Market?
• Donald Trump Tests His Limits

Lockheed Martin (LMT) stock moved lower out of the gate Tuesday after the defense and aerospace manufacturer came up short of top- and bottom-line expectations for its fourth quarter and issued a mixed outlook for the full fiscal year.

In the three months ending December 31, Lockheed Martin's revenue decreased 1.3% year over year to $18.6 billion. Its earnings per share (EPS) declined 70.7% from the year-ago period to $2.22, including a $5.45 per share after-tax impact due to classified-programs losses.

Still, Lockheed Martin CEO Jim Taiclet said "2024 was another successful and productive year for" the company. Its "5% sales growth and record year-end backlog of $176 billion demonstrate the enduring global demand for our advanced defense technology and systems," he noted, adding that LMT's "strong and consistent performance also enabled us to again return greater than 100% of free cash flow to our shareholders in 2024."

The results came up short of analysts' expectations. Wall Street was anticipating revenue of $18.8 billion and earnings of $6.61 per share, according to Yahoo Finance.

For 2025, Lockheed Martin said it expects to achieve revenue in the range of $73.75 billion to $74.75 billion and earnings per share of $27 to $27.30. The midpoints of these ranges, revenue of $74.25 billion and earnings of $27.15 per share, are mixed compared with the $74.1 billion in revenue and $27.94 per share in earnings Wall Street is calling for.

Is Lockheed Martin stock a buy, sell or hold?

Lockheed Martin has lagged the broad market over the past 12 months, up 20% on a total return basis (price change plus dividends) vs the S&P 500's 25% gain. But Wall Street remains bullish on the industrial stock.

According to S&P Global Market Intelligence, the average analyst target price for LMT stock is $555.30, representing implied upside of nearly 20% to current levels. Additionally, the consensus recommendation is Buy.

Financial services firm Truist Securities is one of the more bullish outfits on the large-cap stock with a Buy rating and $579 price target.

Truist Securities analyst Michael Ciarmoli says LMT's share-price weakness creates a "compelling entry point," and that fears related to potential cost cuts recommended by the Department of Government Efficiency (DOGE) are "overblown" and that "defense spending will continue to rise in coming periods."

He adds that he assumes "LMT management can execute on its 2025 guidance and achieve its multi-year growth framework."

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Whether you are for or against them, stock buybacks could accelerate as the end of the year nears. This is because the Biden administration's excise tax on share repurchases – introduced as part of the Inflation Reduction Act (IRA) signed into law in mid-August – is set to go into effect at the start of 2023. 

When a company buys back their stock, it removes the shares from the marketplace, which in turn, can boost earnings per share and the per-share price – maximizing shareholder value. Beginning Jan. 1, public companies based in the U.S. must pay a 1% tax on their share repurchases, no matter the size. At the same time, the IRA implemented a 15% alternative minimum tax (AMT) on corporations with book income over $1 billion.

But, as with most things, there are exceptions to the rule. For one, if a company repurchases stock and then commits an equal value in a single year to the company's employee pension plan, employee stock ownership plan or similar plan, they are exempt from the 1% tax, says Los Angeles-based global law firm Latham & Watkins.

Still, even with the exceptions, Latham & Watkins suggests that companies should "give careful consideration to the timing of stock buybacks and stock issuances." Based on market and business conditions, the law firm writes in its report, some corporations "may decide to accelerate planned 2023 buybacks to 2022."

3 Companies Already Unveiling Stock Buybacks

There is already evidence that some companies are shifting their stock repurchases to occur by the end of 2022 versus at some point next year.

Department store chain Kohl's (KSS), for instance, announced on Aug. 18 – two days after the IRA was signed into law – that it had entered into an accelerated share repurchase (ASR) agreement with Goldman Sachs. The ASR is for $500 million, with the final settlement in November, well before the Dec. 31 deadline to avoid the 1% tax.

Defense contractor Lockheed Martin (LMT, $446.54) is another company that recently announced an accelerated stock buyback program. LMT did so after unveiling its Q3 2022 financial results on Oct. 18. They were good, with the firm beating on the bottom line and maintaining its full-year guidance.

Additionally, as part of its earnings announcement, Lockheed said it would execute a $4-billion ASR before the end of the year, doubling its share repurchases in 2022 to $8 billion. At the same time, the company's board agreed to an additional $14 billion in share repurchases over the next three years.

LMT will save $40 million in taxes through the ASR. However, the $14 billion share repurchases planned over the next 36 months will cost it $140 million in additional taxes thanks to the IRA.

On the same day as Lockheed Martin, State Street (STT, $66.64) announced it would repurchase $1 billion of its stock in the fourth quarter. While not specifically an ASR, it is considerably larger than anything it's done in some time.

STT's plan to buy back $1 billion in stock by the end of 2022 is part of a larger $3 billion share repurchase program announced in July 2021. It did not make any share repurchases between Q3 2021 and Q3 2022. Assuming it only repurchases $1 billion of its stock in the fourth quarter, the company will have a $20 million tax bill on the $2 billion it didn't complete from its original program.

These three companies are hardly alone. And it's possible we could see even more firms announce accelerated stock buybacks as they scramble to save a few million in taxes before the new calendar year begins.

U.S. stocks rallied for a second straight day on Tuesday as solid quarterly results from Goldman Sachs and Lockheed Martin dampened worries of a dismal earnings season as it begins to pick up steam.

Goldman Sachs Group Inc gained 2.07% after reporting a smaller-than-expected drop in quarterly profit as a boost in net interest income cushioned the blow from a slowdown in investment banking.

The investment bank, which is reorganizing its business into three units, largely closed out earnings from major financial firms on a largely positive note, even though several lenders raised the loan loss provisions in anticipation of troubled times ahead.

Lockheed Martin shot up 8.49% after the weapons maker posted stronger-than-expected quarterly revenue and maintained its 2022 revenue view. The gains help lift the S&P industrials index 1.79%, the strongest performance of the 11 major sectors.

"This is why the rally happened yesterday and the rally is going on today is none of the six-month views that we get from the earnings reporting businesses is overly dour, and that kind of goes against every last person that is saying we are going to have a recession in six months," said Kim Forrest, chief investment officer at Bokeh Capital Partners in Pittsburgh.

"Companies are actually really very good, catastrophes and crises aside, at being able to forecast within their pipeline now."

Analysts now expect quarterly earnings growth for S&P 500 companies of just 2.8% from a year ago, much lower than an 11.1% increase expected at the start of July, according to Refinitiv data.

The Dow Jones Industrial Average rose 215.81 points, or 0.71%, to 30,401.63, the S&P 500 gained 21.19 points, or 0.58%, to 3,699.14 and the Nasdaq Composite added 19.23 points, or 0.18%, to 10,695.03.

Also providing a boost was a 4.28% climb in Salesforce Inc after a media report that activist investor Starboard Value LP has picked up stake in the enterprise software firm.

Signs the U.S. Federal Reserve's aggressive rate hike path may be starting to crimp the labor market were beginning to appear. Microsoft Corp, edged down 0.32% after a report it was laying off under 1,000 employees this week, becoming the latest U.S. technology company to cut jobs or slow hiring amid a global economic slowdown.

The Fed's path has left many investors worried it could tilt the economy into a recession by making a policy mistake and raising rates too much. Fed officials have largely been in sync in comments about the need for the central bank to tamp down inflation.

A report said ratings agency Fitch has slashed U.S. growth forecasts for this year and next and was set to warn that the Fed's interest rate hikes and inflation will drive the economy into a 1990-style recession.

But economic data on Tuesday indicated the manufacturing sector remains on reasonable footing despite the Fed's efforts, although they appear to be sharply weighing on the housing market.

Netflix lost 1.90% ahead of its earnings report after markets close, with all eyes on the video-streaming company's subscriber growth, which is seen falling in the third quarter.

Advancing issues outnumbered declining ones on the NYSE by a 2.31-to-1 ratio; on Nasdaq, a 1.68-to-1 ratio favored advancers.

The S&P 500 posted 3 new 52-week highs and 2 new lows; the Nasdaq Composite recorded 61 new highs and 81 new lows.

(Reuters reporting by Chuck Mikolajczak; Editing by David Gregorio)

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The major indexes traded well into the green Tuesday, and they did so while flying into a couple of headwinds.

Rising interest rates, which have helped to keep stocks grounded of late, continued their 2022 climb, with the 10-year Treasury reaching 2.948% today as it marches toward a 3% threshold last crossed in late 2018.

Meanwhile, the corporate earnings calendar was largely a mixed affair.

Johnson & Johnson (JNJ, +3.1%) beat first-quarter earnings expectations but missed on revenues and lowered its full-year 2022 sales and profit forecasts. It did, however, announce its 60th consecutive annual dividend hike – a 6.6% bump to $1.13 per share quarterly – to extend its membership in the Dividend Aristocrats.

Defense contractor Lockheed Martin (LMT, -1.6%) sagged after delivering a bottom-line beat but missing both on Q1 revenues and its full-year 2022 sales outlook.

Insurer Travelers (TRV, -4.9%) reported a better-than-expected 48% jump in profits thanks to lower catastrophe losses, though it did suffer a decline in its ratio of claims and related costs to premiums collected.

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Also Tuesday, fresh data showed that housing permits rose 0.4% month-over-month in March to 1.873 million annualized, while housings starts were up 0.3% to 1.793 million units annualized.

"Housing starts rose solidly in March; residential construction added to real GDP growth in the first quarter," says Bill Adams, chief economist for Comerica Bank. But he adds that supply chain issues are a huge problem for housing. "The backlog of houses that are permitted or started but not completed is the biggest since the 1970s."

The Nasdaq Composite advanced 2.2% to 13,619, while the S&P 500 (+1.6% to 4,462) and Dow Jones Industrial Average (+1.5% to 34,911) also finished with substantial gains.

After the closing bell, Netflix (NFLX) reported its first quarterly subscriber decline in more than a decade. Shares plunged by 23% in early after-hours trading as Netflix said it suffered a Q1 loss of 200,000 subs, which kept revenues of $7.78 billion below analyst expectations. That overshadowed an easy earnings beat of $3.53 per share vs. estimates of $2.89.

Other news in the stock market today:

• The small-cap Russell 2000 continued to bounce back and forth across the 2,000 level, gaining 2.0% to 2,030.
• U.S. crude futures plummeted 5.2% to end at $102.56 per barrel, weighed on by a strengthening U.S. dollar and worries over slowing Chinese demand.
• A stronger dollar pressured gold futures too, ending the day down 1.4% at 1,959.00 an ounce.
• Bitcoin recovered another 1.4% to $41,349.59. (Bitcoin trades 24 hours a day; prices reported here are as of 4 p.m.
• Hasbro (HAS) advanced 5.2% after the toymaker reported revenue of 1.16 billion for its first quarter – in line with what analysts were expecting – and raised its 2022 revenue forecast, now expecting sales to grow in the mid-single digits this year compared to previous guidance for low-single-digit growth. This helped offset a bottom-line miss, with HAS reporting earnings of 57 cents per share versus the consensus estimate for 62 cents per share. "The company saw 76% sales growth in entertainment as the division benefitted from resumed productions and deliveries and 32% sales growth in digital gaming as they see continued momentum in the space," says CFRA Research analyst Zachary Warring (Buy). "We believe HAS will outperform as its entertainment and digital segments drive margins and sales higher."

Real Estate With Rising Payouts

Having itself a day was equity real estate (+2.1%), a sector that so far delivered a middling 2022.

Helping push it higher was Prologis (PLD, +4.0%), a logistics-focused real estate investment trust (REIT) that reported Street-beating earnings and raised its full-year guidance amid "record demand" thanks to supply-chain issues.

Also moving the sector was American Campus Communities (ACC), which spiked 12.5% after The Wall Street Journal reported asset management firm Blackstone (BX, +4.9%) will buy the student housing developer in a $12.8 billion deal that includes debt.

"The premium to Monday's close [for ACC stock] is ~15%," says Piper Sandler analyst Alexander Goldfarb. "While we certainly were not expecting this deal, it doesn't totally surprise given the Street has long valued the company below net asset value versus the ebullient private market that clearly showed the demand for student housing."

So far in 2022, rising rates have held back REITs, which as a sector are off a little more than 4% year-to-date. But a team of Janus Henderson portfolio chiefs believes any future rate headwinds should be largely limited.

"Should bond yields and interest rates move significantly higher, this could impact property capital values," the portfolio managers say. "However, most REITs have been very proactive in recent years in extending and fixing their debt book, which should reduce their exposure to short-term rate rises."

Remember: Real estate investment trusts are largely appreciated by the income-investing crowd because their mandate to deliver at least 90% of taxable earnings back into the hands of investors typically translates into better-than-normal yields.

But sweetening the pot even more are those REITs that can muster exceptional dividend growth as well. We've recently explored seven real estate plays that have reliably raised payouts in previous years and have delivered double-digit growth of late.

Fresh turbulence has returned to the Middle East – and historically, that has been good for defense stocks.

The Taliban has seized control of Afghanistan in just a little more than a month after the U.S. began evacuating troops. This lightning-quick change in power dynamics has bred fears that the country will become a safe haven for terrorists, and that this unrest could boil over into other parts of the Middle East.

Understandably, investors in defense stocks are paying close attention. This turn of events could breed increased demands for intelligence, surveillance and reconnaissance equipment. And if additional conflicts arise, there could be fresh demand for military equipment.

Many are comparing the Taliban's capture of Kabul, the capital of Afghanistan, to the "fall of Saigon" on April 30, 1975. This was when the North Vietnamese army seized Saigon, the capital of South Vietnam. How similar the two situations are is a debate left for another day – but it is worth noting what happened to defense stocks in fall of Saigon's wake.

"In the 1 and 3 months after the fall of Saigon on April 30, 1975, while the S&P 500 gained 4.4% and 1.7%, respectively, the S&P 500 Aerospace Defense sub-industry jumped 15.4% and 26.0%," says Sam Stovall, chief investment strategist for independent research firm CFRA. "Even though history should be viewed as a guide and not gospel, CFRA thinks the Aerospace group offers a favorable investment opportunity today."

With that in mind, investors should consider adding defense stocks to their portfolios. Here are five such stocks that are rated Buy in the Stock News POWR Ratings system.

Data is as of Aug. 19.

• Market value: $98.0 billion
• POWR Ratings overall rating: B (Buy)
• POWR Ratings average broker rating: 1.60

Lockheed Martin (LMT, $354.03) is the world's largest defense contractor and has dominated the Western market for high-end fighter aircraft since being awarded the F-35 program in 2001. The company's largest segment is Aeronautics, which is dominated by the massive F-35 program. The company's remaining segments are Missiles and Fire Control, Rotary and Mission Systems, and Space.

The company is enjoying strong demand for its high-end military equipment both in domestic and international markets. LMT successfully closed several deals in the second quarter, including a $1.8 billion contract to procure logistics services for delivered F-35 jets. It also clinched a $1 billion contract to provide logistics support for the Space Based Infrared System (SBIRS).

Lockheed also has experienced strong demand for its tactical Missile and Fire Control products internationally. It has recently received orders for precision fires systems from both Poland and Romania.

But the F-35 program continues to be LMT's key growth driver. Most recently, it delivered 37 jets during the second quarter, and the program is expected to provide stable revenue for decades.

Lockheed has long been one of the best defense stocks on the market, easily outperforming the industry benchmark over the trailing 10 and 15 years. It looks attractive going forward, too.

The POWR Ratings system gives Lockheed a B grade, which translates into a Buy. Among reasons to like it are its valuation – a Value Grade of B is supported by trailing and forward price-to-earnings (P/E) ratios around 13, as well as an enterprise value-to-earnings before interest, taxes, depreciation and amortization (EBITDA) of 10.3.

LMT stock also earns a Quality Grade of B thanks to a solid balance sheet. As of the most recent quarter, the company had $2.7 billion in cash, compared with only $506 million in short-term debt. Additionally, its current ratio and quick ratio – two metrics that measure a company's ability to meet short-term debt obligations – are both above 1, indicating strength on that front. Read more about Lockheed Martin's (LMT) complete POWR Ratings here.

• Market value: $57.8 billion
• POWR Ratings overall rating: B (Buy)
• POWR Ratings average broker rating: 1.52

Northrop Grumman (NOC, $361.09) is a defense contractor that is diversified across short-cycle and long-cycle businesses. And it has an F-35 connection – NOC's Aerospace segment creates the fuselage, as well as produces various piloted and autonomous flight systems.

Mission Systems creates a variety of sensors and processors for defense hardware, while the Defense Systems segment is a mix between a long-range missile manufacturer and a defense IT service provider. Lastly, the company's Space Systems segment produces various space structures, sensors and satellites.

Overall, the company is seeing strong demand for its products on a global scale.

NOC has a strong presence in Air Force, space and cybersecurity programs. Its product line is well-positioned in defense electronics, unmanned aircraft and missile defense, enabling the firm to capture contracts from the Pentagon and foreign allies of the U.S. Foreign military sales have been a key growth driver for the firm.

On the domestic side, Northrop is expected to gain from the proposed fiscal 2022 budget that includes $715 billion for the Pentagon, which is 1.6% higher than the approved fiscal 2021 budget.

NOC is one of several B-graded defense stocks in the POWR Ratings system. Helping its rating is a Stability Grade of B, which indicates that growth and price performance have been steady. For instance, a beta of 0.51 indicates that the stock is about half as volatile as the S&P 500. Earnings growth also has been steady over the past five years.

Northrop's Sentiment Grade of B reflects good standing in the analyst community. Right now, 14 pros consider the stock a Strong Buy or Buy, versus just four Holds, one Sell and one Strong Sell. You can get further POWR Ratings analysis for Northrop Grumman (NOC) here.

• Market value: $54.6 billion
• POWR Ratings overall rating: B (Buy)
• POWR Ratings average broker rating: 1.70

General Dynamics (GD, $195.49) is a defense contractor and business jet manufacturer. Its Aerospace segment creates Gulfstream business jets, while Combat Systems produces land-based combat vehicles, such as the M1 Abrams tank. The Marine Systems segment develops nuclear-powered submarines. And its Technologies division provides information technology and mission systems.

GD enjoyed robust order growth in the second quarter. This created a substantial backlog (up 8% year-over-year), with the highest orders in aerospace, marine, and combat systems segments. For instance, the company clinched $135 million from the U.S. Navy to provide ongoing lead yard services for the Virginia-class submarine program.

In addition, GD struck a $620 million deal from the U.S. Army to upgrade Stryker vehicles to the double-V-hull A1 configuration, plus another $435 million to produce Stryker Initial Maneuver Short-Range Air Defense vehicles.

The company is also moving along in product development, as all five of its Gulfstream G700 flight-test aircraft are flying with over 1,600 hours of test flights. This jet is expected to be in service in the fourth quarter of 2022, which should boost both its top and bottom lines next year.

GD's overall B grade (Buy) from the POWR Ratings system includes a Value Grade of B. Its trailing and forward P/Es are both around 17, which is lower than the overall market, and its price-to-free cash flow (P/FCF) of 14.4 is well below the 44.7 average among defense stocks.

General Dynamics' Sentiment Grade of B indicates that General Dynamics' shares are well-received by the pros. Eleven analysts say GD stock is a Strong Buy or Buy, six call it a Hold, and only three say it's a Sell or Strong Sell. See the complete POWR Ratings for General Dynamics (GD) here.

• Market value: $8.0 billion
• POWR Ratings overall rating: B (Buy)
• POWR Ratings average broker rating: 1.86

Huntington Ingalls Industries (HII, $200.16) was created from the spinoff of NOC's shipbuilding business. HII is the country's largest independent military shipbuilder, and more than 70% of the active U.S. Navy fleet consists of HII's ships.

Two of Huntington Ingalls' segments involve shipbuilding: Ingalls Shipbuilding, Newport News Shipbuilding (nuclear-powered aircraft carriers and submarines). Of note, Huntington Ingalls is the sole contractor for the Gerald R. Ford-class aircraft carrier. The company is also a major subcontractor to the Columbia-class attack submarine.

HII's third division, Technical Solutions, produces unmanned undersea vehicles and provides various IT services for the government.

Like many other defense stocks on this list, U.S. fiscal budgets have played a key role in growth for the company, especially the shipbuilding business. The company also has had a productive quarter from a contract standpoint. In Q2, HII won contracts worth $1.2 billion, which resulted in a backlog of $47.7 billion. Huntington Ingalls is also progressing with new ships; for example, in the submarine program, the Montana (SSN 794) is on track for delivery to the Navy later this year.

The POWR Ratings service pegs HII stock as a B-rated Buy. This is an exceptional value stock right now, with a Value Grade of A reflecting a trailing P/E of 11.1 and a forward P/E of just 15.4. Also, its price-to-sales ratio of 0.9 is half the industry average.

Huntington Ingalls also has a Quality Grade of B, which makes sense when you look at its fundamentals. A return on equity of 36.2% indicates management is efficient. In addition, its current ratio of 1.1 indicates the company has more than enough liquidity to handle short-term needs. Check out a complete POWR Ratings analysis of Huntington Ingalls Industries (HII).

• Market value: $46.2 billion
• POWR Ratings overall rating: B (Buy)
• POWR Ratings average broker rating: 1.57

L3Harris Technologies (LHX, $230.12) was created in 2019 from the merger of L3 Technologies and Harris – two defense contractors that provide products for the command, control, communications, computers, intelligence, surveillance and reconnaissance markets. The company also has smaller operations that serve the civil government, including the Federal Aviation Administration's communication infrastructure.

Just like the other defense stocks mentioned here, LHX boasted numerous contract wins during Q2. Total awards to date sit at more than $700 million, and the company boasts a healthy win rate of 70%.

L3Harris also is looking to become a global leader in electronic warfare and aircraft survivability. It is doing so by leveraging its experience with providing F-16 systems, as well as its expertise in software-defined open systems architecture, according to CEO William Brown. The company already won a contract to develop a next-generation electronic warfare suite on international aircraft in the first quarter. Going forward, LHX wants to expand its global footprint in Asia, Europe and the Middle East. This should help provide more revenue growth over the long term.

POWR Ratings gives L3Harris' shares an overall grade of B, or Buy. A beta of 0.68 educates a Stability Grade of B. LHX also has experienced steady growth in sales, earnings and EBITDA – that last metric in particular has grown by 22.2% annually on average over the past five years.

Meanwhile, L3Harris earns a Quality Grade of B due to a strong balance sheet. Not only does the company have an attractive current ratio of 1.7, but its debt-to-equity of 0.4 is encouraging, too. The company also grew its cash pile to $2.0 billion from $1.3 billion at the start of the year. Get a complete POWR Ratings analysis on L3Harris Technologies (LHX) here.