Defense stocks have been surprisingly lousy lately. That could change as the midterm elections approach. Wall Street has some new ideas for investors to consider.

Coming into Tuesday trading, the iShares Aerospace & Defense exchange-traded fund was down 7% since the start of the Iran war in late February, underperforming the S&P 500 by almost 20 percentage points. Lockheed Martin stock was down about 20% over that span. Northrop Grumman and L3Harris Technologies shares were off almost 30%.

Rising defense spending and diminishing missile inventories (which need to be replenished) should be good for the sector. That hasn't been the case, though. Capital Alpha Partners analyst Byron Callan says that fear over a split Congress after the midterm elections is one reason. That can create spending gridlock, which would add even more uncertainty to the sector.

But in the stock market, declines are also opportunities. UBS analyst Gavin Parsons upgraded Lockheed Martin to Buy from Hold. His price target went to $674 from $581.

Lockheed hasn't been the most popular defense stock, with Wall Street seeing the F-35 fighter jet, which accounts for some 25% of total revenues, as a drag on growth. The program has been a huge success, but the U.S. military and its allies can buy only so many jets. The missile business, however, is booming, a big reason Parsons upgraded shares.

Valuation doesn't hurt. Lockheed traded at about 22 times earnings expected over the coming 12 months earlier this year. Now it trades at about 17 times.

On the other hand, Melius analyst Scott Mikus downgraded shares of L3Harris to Hold from Buy on Tuesday. His price target went to $299 from $350.

L3Harris supplies missile components, among many other things. It was going to spin off a missile-related business this year, but that plan is now on hold, partly because sector stocks have been so weak. (Early in 2026, drone maker Kratos Defense & Security Solutions traded at 168 times earnings expected over the coming 12 months. Now it trades at 48 times.)

That pause of the spinoff plan was a disappointment. In addition, Mikus sees more competition for L3Harris. Other companies are scaling up related production, including Northrop and privately held Anduril.

General Dynamics is another large contractor for investors to consider. It remains popular on Wall Street, with 58% of analysts covering the stock rating its shares Buy. The average Buy-rating ratio for an S&P 500 stock typically ranges from 55% to 60%.

The Buy rating ratios for Northrop, L3Harris, and Lockheed are 61%, 60%, and 46%, respectively.

More than upgrades, the entire sector could use a catalyst. The midterm elections could be one, according to Citi analyst John Godyn. He pointed out in a recent report that defense stocks typically sell off in the spring ahead of midterm elections and then rebound in early fall, a pattern that mimics a smile.

"This year [is] very much on pattern," he says. "We believe there is more to go-in other words, defense stocks are likely to keep smiling."

Defense investors haven't been smiling lately. That might change later this year.