The Middle East is going through a tumultuous period once again. And as bad as that may be for the broader economy, certain companies love the kind of scenario we are in now.
RTX Corporation (RTX) and Lockheed Martin (LMT) are set to be two of the biggest beneficiaries of the latest flare-up, with the Pentagon seeking $200 billion to fund it. Moreover, President Donald Trump sees a $1.5 trillion budget for FY2027, something that was impossible just two months ago.
Defense tech stocks were already surging for over two years. But now that a closed Strait of Hormuz could cause stagflation worldwide, it’s time to shift gears and snap up the stocks that benefit from conflict.
RTX Corporation is one of the most consequential defense and aerospace companies in the world, and the ongoing Iran conflict has put it squarely in the spotlight. It formed through the merger of Raytheon and United Technologies. RTX sells guided missiles, air defense systems, radars, jet engines (both commercial and military), and military jet components.
Almost everything it makes is in hot demand at the moment. Tomahawk cruise missiles, which Raytheon manufactures and which fly at high speed and low altitude to evade radar, were among the first weapons used in the strikes. On the defensive side, RTX makes the Patriot radar and ground systems.
David Burns, chief investment officer at Catalyst Funds, said, “The companies that have the most exposure to missile defense systems are the ones that are gonna be the biggest beneficiaries of increased demand.” RTX is one of them.
As far as stagflation goes, we can look to the past. The Korean War, which unfolded during a period of rising inflation, is the most instructive precedent. Defense stocks outperformed both broader equities and bonds during that period. RTX’s $268 billion backlog essentially pre-funds years of production, insulating it from demand shocks that hammer cyclical sectors during stagflation.
No war can be won without Lockheed Martin, because it supplies the U.S. military with its state-of-the-art weapons. Its Aeronautics arm makes the legendary F-35 Joint Strike Fighter, the C-130J transport, and classified programs developed by “Skunk Works,” which famously built the SR-71 Blackbird and U-2 spy plane.
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