Defense stocks just had the kind of week that makes investors reach for the antacids. President Trump unleashed a flurry of proposals targeting the defense industry, ranging from limiting stock buybacks to capping executive compensation. The good news? Most of these ideas seem about as likely to become law as a bipartisan hug-fest on the Senate floor.

What does appear grounded in reality is the proposed Pentagon budget increase. Trump wants $1.5 trillion in defense spending for 2027, which would represent a staggering 66% jump from the current 2026 budget. Sure, the final number will probably come in lower after Congress gets done negotiating, but the direction is clear: defense spending is headed up, and U.S. contractors are positioned to benefit.

So which stocks should investors be watching? Here are five defense names with compelling fundamentals and technical setups that could ride this spending wave higher.

Kratos Defense and Security Solutions Inc.

Kratos Defense and Security Solutions (KTOS) burst into the defense spotlight during 2024 thanks to its cutting-edge work in unmanned systems, drones, missiles, and satellites. Technically, the company has been trading publicly since the Dot-Com era, but it spent years languishing in penny stock purgatory before its recent transformation into a $20 billion defense powerhouse.

The fundamentals tell a compelling story. Kratos has delivered over $300 million in quarterly sales for three consecutive quarters and consistently beats analyst earnings expectations. The market has taken notice, with three price target increases already in 2026, including a new Street-high $134 target from Stifel.

From a technical perspective, KTOS shares are on fire. The stock recently smashed through its 50-day simple moving average, which had been acting as stubborn resistance. A bullish crossover in the Moving Average Convergence Divergence indicator confirmed the breakout, and shares have now punched through their previous all-time high from October. Both fundamental and technical winds are blowing in the same direction here, suggesting more gains could be ahead. Just remember that eye-popping valuations deserve equally careful stop-loss discipline.

RTX Corp.

RTX (RTX) emerged from the 2020 merger of Raytheon and United Technologies Corp, creating an aerospace behemoth with a market cap approaching $260 billion and annual sales exceeding $80 billion. Unlike some high-flying growth plays, RTX offers investors a more conservative profile with a reasonable valuation of 31 times forward earnings and a 1.4% dividend yield.

There's also a near-term catalyst brewing. The company reports Q4 2025 earnings on January 27, and analysts are projecting record quarterly revenue of over $22.7 billion. Not too shabby for a mature defense contractor.

While Kratos is experiencing a parabolic surge, RTX represents the tortoise approach to wealth building. The stock price has traded comfortably above both its 50-day and 200-day simple moving averages since the April tariff selloff, and the 50-day line has repeatedly attracted buyers. This is what a healthy bull run looks like in a megacap stock.

One yellow flag: the Relative Strength Index is flirting with overbought territory. That doesn't mean the rally is dead, but it does suggest some caution is warranted. The long-term trend remains decidedly bullish.

L3Harris Technologies Inc.

L3Harris Technologies (LHX) grabbed headlines this week after announcing plans for a $1 billion Department of Defense investment in its missile business. The company intends to spin out this division into a separate entity with Pentagon backing, which should liberate cash flow at the parent company. L3Harris will maintain a controlling stake in the new enterprise, which plans to go public later this year.

In other news that will shock absolutely no one, several U.S. senators serving on defense committees purchased LHX shares during 2025. Nothing to see here, folks. Just completely normal, perfectly timed investment decisions by public servants with advance knowledge of defense spending priorities.

The stock chart mirrors Kratos' explosive move. After hugging the 50-day simple moving average for more than six months, LHX shares have rocketed over 16% higher since January began. The stock popped another 10% intraday on Tuesday following the Pentagon investment announcement, though profit-taking brought it back to flat by the close. Still, the upward momentum looks solid, supported by strong fundamentals and a bullish MACD crossover.

General Dynamics Corp.

General Dynamics (GD) is the $97 billion defense contractor headquartered just outside Washington D.C. in Reston, Virginia. With an IPO dating back to 1962, this is one of the oldest publicly traded defense stocks in the S&P 500, and it's been a cash-generating machine for dividend-focused investors.

The dividend story here is particularly attractive. The yield sits at 1.66%, and the company has increased annual payouts for 34 consecutive years. Even better, the payout ratio is just 38%, leaving substantial room for future dividend growth.

President Trump hasn't exactly showered legacy defense contractors with praise, but the sheer magnitude of his proposed budget increase means large-cap players like General Dynamics will be essential to achieving his administration's goals. GD brings both fundamental and technical strengths to the table. The stock trades at a reasonable 24 times forward earnings and 2 times sales, and just secured a massive $900 billion contract with the U.S. Navy.

Technically, the breakout above the 50-day simple moving average triggered fresh buying interest, and GD has already notched two new all-time highs in the first two weeks of 2026. The Relative Strength Index remains below the overbought threshold of 70, suggesting this rally hasn't run out of steam yet.

Northrop Grumman Corp.

Northrop Grumman (NOC) rounds out the list of usual suspects in the U.S. defense establishment. The company traces its lineage back to the 1930s through fighter-plane pioneers Northrop Corp. and Grumman Corp. The two companies merged and went public in 1981, and today Northrop Grumman ranks as the fifth-largest U.S. contractor by percentage of defense spending, trailing only Lockheed Martin, RTX, General Dynamics, and Boeing.

NOC shares recently escaped from a multi-month downtrend, reclaiming the 50-day simple moving average after a volatile trading week. The breakout has since been confirmed on the MACD indicator, and with the Relative Strength Index still below 70, there could be additional upside from current levels.

The company reports earnings on January 27 and will be looking to build on its impressive Q3 2025 performance, when it delivered an 18% earnings-per-share beat versus analyst expectations. If management can repeat that kind of surprise, the stock could have more room to run.

The defense sector survived a turbulent week, and while some of Trump's proposals created noise, the signal that matters most is the proposed budget increase. Whether we get the full 66% boost or something smaller, the trajectory for defense spending is clearly upward. These five stocks offer different approaches to capitalizing on that trend, from high-growth plays like Kratos to dividend stalwarts like General Dynamics and Northrop Grumman. Just remember that even in a bull market, proper risk management remains essential.