These are the defense stocks you need to own, analyst says

Beacon Securities analyst Russell Stanley notes that  a sharp acceleration in defense-sector capital spending is underway following a new U.S. policy directive aimed at expanding production capacity across the industry.

In early January, U.S. President Donald Trump signed an executive order titled Prioritizing the Warfighter in Defense Contracting, which Stanley said is intended to pressure defense manufacturers to prioritize capacity expansion over share buybacks and dividends. The impact of the order is already visible in forward guidance, with major defense contractors collectively planning to increase capital expenditures by a weighted average of about 37% in fiscal 2026, compared with 6% growth in fiscal 2025.

Stanley noted in his Feb. 2 report that last year’s spending was unusually subdued. Excluding Boeing, which remains focused on restoring commercial jet production to pre-pandemic levels, aggregate defense-sector CAPEX declined by about 1% in fiscal 2025. Over the 2021–2025 period, the group expanded CAPEX at a 9% compound annual growth rate, or roughly 4% excluding Boeing, a pace Stanley said was only modestly above inflation.

While several contractors operate dual-use businesses serving both defense and commercial markets, Stanley said management commentary suggests that the bulk of the planned increase is defense-related. He said that the higher spending is demand-justified, independent of the executive order, given rising defense budgets globally and growing backlog visibility.

Based on company disclosures, Beacon estimates total sector CAPEX will rise to approximately US$14.1-billion in fiscal 2026, up from US$10.3-billion in fiscal 2025. Excluding Boeing, CAPEX is projected to increase to roughly US$10.1-billion, compared with US$7.3-billion last year. Among the largest increases, Boeing is guiding to about US$4.0-billion in fiscal 2026 CAPEX, Lockheed Martin to roughly US$2.7-billion, General Dynamics to about US$2.1-billion, and RTX (formerly Raytheon Technologies Corporation) to approximately US$3.1-billion.

Stanley said the acceleration in spending, while modest relative to AI hyperscalers in absolute terms, should meaningfully improve production throughput across the defense supply chain and drive incremental demand for subcontractors.

He highlighted Firan Technology Group (Firan Technology Group Stock Quote, Chart, News, Analysts, Financials TSX:FTG), which he rates “Buy” with a C$17.00 target, citing RTX as a major direct customer and Boeing as a key end customer.

He also pointed to Graham Corporation (Graham Corporation Stock Quote, Chart, News, Analysts, Financials NYSE:GHM), rated “Buy” with a US $90.00 target, noting that General Dynamics’ expanded CAPEX is particularly relevant given its role as prime contractor on the Virginia- and Columbia-class submarine programs supported by Graham.

Stanley said MDA Space (MDA Space Stock Quote, Chart, News, Analysts, Financials TSX:MDA), which he rates “Buy” with a C $60.00 target, is well positioned to benefit as both a prime contractor and subcontractor as defense production capacity expands.

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