Palantir tops a screen of defense companies for growth through 2028, but most of the expected best growers are small-cap stocks
TTM Technologies makes radar components used in various defense systems, including the Lockheed Martin F-35 Lightning II (at right).
So far this year, the largest U.S. defense contractors as a group haven't performed very well. But there are several factors pointing toward a long growth cycle for aerospace and defense. And if you are playing this long-term trend, some of the smaller players are among those expected to grow most quickly over the next two years.
The S&P 500 aerospace and defense industry group returned only 5.5% for 2026 through Wednesday, while the full S&P 500 SPX has returned 10.9%, both with dividends reinvested, according to FactSet.
For long-term investors, tailwinds for aerospace and defense contractors include the need for the U.S. to replenish various stockpiles depleted during the conflict with Iran. Adoption of new technology to make use of directed-energy weapons and other innovative technologies to lower the cost of combating inexpensive drones is another emerging theme, as is the need for continual maintenance and upgrades of radar and guidance systems.
B. Riley analyst Mike Crawford summed up the political-military scene in a note to clients on Thursday by referring to "an emerging generational recapitalization of global defense posture and budgets."
For a screen of U.S.-listed aerospace and defense industry stocks, we began with the components of three exchange-traded funds that track companies in related industries. Here is a performance summary for the S&P 500 A&D industry group, the three ETFs and the full S&P 500 through Wednesday:
Index, group or ETF 2006 return 3-year avg. return 5-year avg. return 10-year avg. return S&P 500 Aerospace & Defense 5.5% 22.7% 16.3% 14.2% iShares U.S. Aerospace & Defense ETF 7.8% 26.6% 17.7% 14.8% Invesco Aerospace & Defense ETF 8.8% 26.9% 18.8% 17.1% State Street SPDR S&P Aerospace & Defense ETF 9.6% 30.0% 16.4% 17.3% S&P 500 10.3% 19.8% 13.0% 15.1% Source: FactSet
The State Street SPDR S&P Aerospace & Defense ETF XAR has had the highest returns for the year-to-date, three-year and 10-year periods, while the Invesco Aerospace & Defense ETF PPA has led for the five-year period.
Here's how the three ETFs approach the A&D space:
-- The iShares U.S. Aerospace & Defense ETF ITA holds 49 stocks as it tracks the Dow Jones U.S. Select Aerospace & Defense Index. The index follows a modified cap-weighting methodology that includes a 22.5% limit on individual stocks, while limiting components with weightings higher than 4.5% to a total index weighting of 45% when it is rebalanced quarterly. The fund's expense ratio is 0.38% (which means $38 in annual fees on a $10,000 investment) and it is rated four stars (the second-highest rating) within Morningstar's U.S. Fund Industrials category. Despite the index's caps on individual stocks, the largest five components of this ETF made up 56% of the portfolio as of Wednesday's close. It holds some relatively small names, with 26 stocks of companies with market capitalizations below $10 billion.
-- The Invesco Aerospace & Defense ETF PPA tracks the SPADE Defense Index and holds 61 stocks. The fund's expense ratio is 0.57% and it has a five-star rating from Morningstar. The underlying index is reconstituted and rebalanced quarterly and weighted by market cap, with a limitation of 10% for each stock. According to FactSet, PPA's "broadly defined" approach to A&D means it might "include firms in non-defense industries." For example, TTM Technologies TTMI is held by PPA and categorized as an electronic components manufacturer, but 42% of its first-quarter revenue came from its A&D segment.
-- The SPDR S&P Aerospace & Defense ETF XAR holds 47 stocks as it tracks the S&P Aerospace & Defense Select Industry Index. The index is rebalanced quarterly with a modified equal-weighted approach, so it holds stocks of large-cap, midcap and small-cap companies. The ETF has an expense ratio of 0.35% and has a four-star rating from Morningstar. According to FactSet, XAR's portfolio "tends to reach outside our definition of the [A&D] segment into other sectors."
Together the three ETFs hold 76 stocks.
We screened for projected compound annual growth rates for revenue from calendar 2026 through 2028, using consensus estimates among analysts polled by FactSet. The data provider adjusted the estimates to match calendar years for companies with fiscal reporting periods that don't match the calendar.
Since the screen was based on estimates, we cut the list further to 67 covered by at least five brokerage or research firms polled by FactSet. Then to add a quality component or to make the list less speculative, we removed companies not projected to show positive earnings per share for calendar 2027 or 2028.
Among the remaining 54 companies, these 15 have the highest projected revenue CAGR from 2026 through 2028:
Company Two-year estimated sales CAGR through 2028 Market cap ($bil)Held by Palantir Technologies 45.0% $286,022PPA York Space Systems 40.5% $2,328ITA, XAR FTAI Aviation 39.2% $22,824ITA, XAR Axon Enterprise 28.8% $39,615ITA, PPA, XAR Karman Holdings 27.1% $6,307ITA HawkEye 360 24.1% $1,875PPA Kratos Defense & Security Solutions 22.0% $8,980ITA Intuitive Machines 21.2% $2,261ITA, XAR nLight 19.5% $4,086PPA VSE 15.1% $5,530ITA, XAR AeroVironment 15.1% $7,609ITA, PPA, XAR TTM Technologies 15.0% $15,027PPA Amphenol 12.8% $193,774PPA Howmet Aerospace 12.2% $112,310ITA Boeing 12.0% $164,479ITA, PPA, XAR Source: FactSet
Click on the tickers for more about each company.
Palantir (PLTR) tops the list with a projected sales CAGR of 45%, and it is also the second-largest company among those in our extended group of 76 stocks, behind GE Aerospace $(GE)$, which has a market cap of $354 billion and, with a projected sales CAGR of 9.8%, didn't make the list.
In comparison, the S&P 500 aerospace and defense industry group's weighted projected sales CAGR from 2026 through 2028 is 7.9%, while the projected sales CAGR for the entire S&P 500 is 7.7%, according to FactSet.
Among the 15 companies topping the screen, nine have market caps below $20 billion and eight have market caps below $10 billion.
Getting back to TTM Technologies, which is held within the PPA portfolio, Crawford of B. Riley wrote in his second-quarter earnings preview on Thursday: "Driving TTM's Aerospace & Defense end market demand is its position as a supplier to over 480 defense programs, including 20 of the top 25 munitions programs by spend." TTM is scheduled to announce its second-quarter results on Aug. 5.
In an interview with MarketWatch earlier this week, Joseph A. Gabelli, who manages the Keeley Small Cap Fund WWSIX, went into detail when discussing TTM's dual prospects as a manufacturer of radar and other defense systems, as well as its position as the largest manufacturer of printed circuit boards.
-Philip van Doorn
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July 23, 2026 12:28 ET (16:28 GMT)
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