5 Best Defense Stocks to Buy According to Hedge Funds

This article examines the top five defense stocks favored by hedge funds. For a more comprehensive overview, readers can refer to the list of the nine best defense stocks recommended by hedge funds.

Despite persistent global geopolitical tensions and increasing military budgets, U.S. defense stocks have faced challenges throughout 2026. As of October 29, the NYSE Arca Defense Index has only risen by 2.76% this year, significantly lagging behind the S&P 500, which has seen a growth of 12.57% in the same timeframe.

Analysts attribute this lackluster performance to ongoing uncertainties surrounding budget allocations, which have dampened investor confidence. Additionally, the evolution of warfare technologies and concerns regarding inflated valuations of defense companies, following years of heightened military activity, have contributed to the sector's struggles.

On September 23, Douglas Harned, an analyst at Bernstein, advised investors to refrain from making purchases during the current selloff until after the midterm elections on November 3. Harned believes that the elections could serve as a crucial turning point, providing clearer insights into future budgetary decisions.

He also downplayed fears that a potential Democratic win would negatively impact defense spending. Citing historical patterns, Harned predicts that the investment budget for 2027 is likely to increase by over 10%.

Brand Clark, the Director of Financial Planning at The Clark Group Asset Management, discussed the defense sector in a recent conversation with Schwab Network. He emphasized that defense investments are not merely short-term opportunities but a vital component of their overall investment strategy. Clark noted that even if the conflict in Iran comes to an end, defense expenditure is expected to remain robust. He highlighted the necessity of replenishing inventories and enhancing stockpiles due to ongoing long-term threats from nations like China and North Korea.

With these insights in mind, let’s dive into the list of the defense stocks that hedge funds are currently endorsing.

Our methodology involved using screening tools to identify defense stocks listed on American exchanges. We then selected the top five companies that attracted the most hedge fund investors, utilizing Insider Monkey's database of notable hedge funds as of the second quarter of 2026. These companies were ranked in ascending order based on the number of hedge funds holding shares. In cases where multiple stocks had the same number of hedge fund supporters, market capitalization was used as a tiebreaker. All data was gathered as of the market close on October 29.

Why is there a particular interest in stocks that hedge funds favor? The answer is straightforward: research indicates that mirroring the top stock selections of leading hedge funds can lead to market outperformance. Insider Monkey's quarterly newsletter employs a strategy that selects 14 small-cap and large-cap stocks each quarter, achieving a remarkable return of 599.2% since May 2014, significantly surpassing its benchmark by 372 percentage points.