Al Root

Aerospace and defense stocks have been strong in 2025, despite persistent supply-chain problems. Several stocks stand to benefit as production returns to normal in 2026.

Through midday trading on Wednesday, the iShares Aerospace & Defense ETF was up about 40% year to date. Thirty-two of the 37 stocks in the fund were up so far in 2025. That is an impressive 86% hit rate.

Investors and Wall Street are feeling comfortable heading into the new year. The average stock in the fund is trading at about 31 times the earnings expected for 2026, up from 23 times a year ago, while the S&P 500 trades for about 22 times. Stocks in the fund are rated Buy, on average, by about 74% of the analysts who follow those companies. The average ratio for S&P 500 shares is closer to 55%.

Things are looking good following a rough stretch. "The first four years of the post-pandemic commercial [airplane] recovery were defined more by what went wrong than what went right: quality issues, supply chain shortages, and labor strikes," wrote Deutsche Bank analyst Scott Deuschle in a Wednesday report.

Things are getting better, making 2025 "the end of the beginning in the commercial [aerospace] recovery," added Deuschle. Improved stability at suppliers and higher production should bring sales and earnings growth in the new year. Another positive is that military spending is set to rise at low double-digit rates.

His favorite stocks linked to faster production at Boeing and Airbus are Howmet Aerospace and Carpenter Technology. Deuschle rates them Buy. His price target for Carpenter is $425, while his call on Howmet is $240.

Howmet stock started the day at about $192. Carpenter stock was at about $304.

Of stocks serving the commercial aerospace aftermarket, Deuschle likes engine maker GE Aerospace, engine parts supplier Woodward, and parts distributor VSE Corp. His price targets for those Buy-rated stocks are $360 for GE and Woodward, and $236 for VSE.

GE Aerospace stock started the day at about $285. Woodward shares were about $287, and VSE stock was $162.

For the defense sector, Deuschle likes Buy-rated RTX and Buy-rated parts supplier Curtiss-Wright. His target for RTX is $200. His target for Curtiss-Wright is $640.

RTX started the day at about $171, and Curtiss-Wright shares were just above $539.

"We are positive on the outlook for [defense] sales growth and revisions, but neutral on the outlook for multiple expansion," wrote Deuschle. That means gains would need to be based on earnings growth, not higher price/earnings ratios.

The large defense contractors, including Lockheed Martin and Northrop Grumman, trade for about 20 times estimated 2026 earnings, up from about 15 times a year ago.

Overall, the seven trade for an average of 34 times earnings, a small premium to the group. The average Buy-rating ratio is 78%, also a bit higher than for aerospace and defense stocks in general.

The lowest Buy-rating ratio is a respectable 63% for RTX. All nine analysts covering VSE rate its shares Buy.

December is the time of the year for 2026 outlooks and ideas. Any one report from a broker is only one piece of the puzzle for investors. Enough reports and ideas, however, can fit together to form a more complete picture.

Write to Al Root at allen.root@dowjones.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

December 10, 2025 16:10 ET (21:10 GMT)

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