It’s a great time to buy defense stocks as DOGE cuts fears are overblown, says Citi
Citi Research thinks the market is failing to correctly price aerospace and defense stocks, leaving open a huge opportunity to buy the dip amid signs of defense spending growth. Defense stocks have taken a hit in recent weeks given uncertainty tied to DOGE’s cost-cutting efforts and President Donald Trump’s mixed messages on his trade and military spending plans. The iShares U.S. Aerospace & Defense ETF (ITA) popped just after Trump’s election win, but lost more than 3% over the past month, fueled by Trump’s suggestion in mid-February that the U.S. could massively cut defense spending. Citi Research analyst Jason Gursky remains bullish on the sector, however, particularly given Europe’s continued defense spending and Trump’s plans to fund a missile defense dome over the U.S. and “resurrect” the domestic shipbuilding industry, which he mentioned during his Tuesday address to Congress. European countries have committed to boost military spending after Friday’s tense Oval Office meeting between Trump and Ukrainian President Volodymyr Zelenskyy. “In our view, this is too punitive given the macro backdrop, which likely points to mid-single growth on the horizon,” Gursky said in a Wednesday note to clients, referring to the growth potential of defense stocks after their recent de-rating. “The market is pricing in the lower bound of historic growth rates into defense stocks.” He added that “defense spending in Europe is likely headed significantly higher and the US Congress recently passed budget resolutions that add upward of $300B in spending over the next ten years,” he added. “Importantly, this spending growth is likely to favor modernization in order to buy deterrence against near peers. As such, we think it’s time to buy defense stocks.” Gursky mentioned several buy-rated defense stocks that have upside ahead. Take a look at a few of his picks below: Lockheed Martin , Northrop Grumman and RTX are key beneficiaries of Trump’s missile defense dome plan, according to Gursky. Of those names, RTX is the outlier in its year-to-date performance, having gained 11.2% on the back of its quarterly earnings and revenue beat in late January. Citi’s price target on RTX suggests the stock could gain another 19%. Lockheed shares, on the other hand, have dragged this year after the weapons manufacturer issued disappointing forward guidance and a fourth-quarter miss on its top and bottom lines. The company’s rotary and mission systems and space systems units fell short of Wall Street’s expectations, while its aeronautics and missiles and fire control segments beat. Lockheed could still pop over the next year with 34% potential upside ahead, according to Citi’s price target. The stock, which has slid roughly 5.3% this year, has added 1.5% so far this week on the back of Trump’s defense-related announcements. Northrop has similarly jumped more than 2% this week on the renewed sentiment, and could jump more than 27%, per Citi’s target. Other buy-rated defense stocks from Citi include General Dynamics , L3Harris Technologies and Curtiss-Wright . General Dynamics notably jumped roughly 4% on Wednesday on the Trump euphoria, lifting shares from its year-to-date slump. The company on Friday was also named one of the prime contractors for a possible sale of roughly $2 billion worth of munitions and related equipment to the government of Israel. Continued supplemental funding for Ukraine and Israel is part of Gursky’s forecast for top-line growth at the Department of Defense throughout the rest of the decade and in the near-term.
