A $1.5 Trillion Defense Budget Is on the Table. Here's the 1 Defense Stock I'd Buy First.

Geopolitical pressures, from the Iran war to U.S.-China conflicts and the Russia-Ukraine war, provide plenty of reasons for defense stocks to have tailwinds in 2026. That's because these pressures are likely to increase global defense spending. At home, the fiscal 2027 National Defense Authorization Act, passed by the House on July 22 but still awaiting a vote in the Senate, proposes a record $1.15 trillion in U.S. military spending.

There were valid reasons for the stock's tumble, mainly a trim to full-year guidance in the second-quarter earnings report. However, at its current share price, the stock is more than a bargain. Here's why I like this company.

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Honeywell Aerospace is a steal at its current price

Even with its trimmed full-year guidance, the stock trades at a low valuation relative to peers, roughly 21 times forward earnings. It's as if investors are still tying the company to the drag its parent put on its margins and not seeing it for what it is -- a pure-play aerospace and defense company.

Honeywell supplies engines, mission-critical avionics, and control systems to commercial and defense customers. Global flight hours, fleet use, and ongoing aircraft delivery backlogs at major original equipment manufacturers continue to drive demand for high-margin repair, maintenance, and overhaul (MRO) and replacement components, such as auxiliary power units, avionics, and flight controls.

Yes, its second-quarter earnings were uneven. It reported $4.5 billion in revenue, up 5% year over year, but earnings per share were $0.78, down 71%. The company trimmed its full-year organic growth guidance from 7%-9% to 4%-5%. It also narrowed its full-year earnings before interest and taxes from a range of $4.65 billion to $4.75 billion to a range of $4.35 billion to $4.45 billion. Most of the reasons for the lowered earnings expectation involved spinoff costs, which will eventually go away.

Analysts are optimistic about the company's future, with an average price target of $213, about 35% above its current price.

It has a huge backlog of orders

Honeywell Aerospace's backlog grew 9% year over year to $18.2 billion in the second quarter. The company already has built-in customers and added $15 billion in new contracts in the quarter.

That backlog is largely tied to defense modernization programs, military avionics upgrades, and next-generation propulsion systems. With rising global defense budgets and long-term procurement commitments, the defense segment provides steady cash flow visibility even during broader macroeconomic pullbacks.

The company's biggest problem is solving supply chain issues to meet its pent-up demand for orders, and as a stand-alone company, it can focus more on that than it could as part of Honeywell International, which changed its name to Honeywell Technology (NASDAQ: HON).

Don't fight these growing trends

Honeywell Aerospace won't remain underappreciated for long because it is at the nexus of two major trends: increased spending on aircraft parts and rising global defense spending.

The global aircraft spare parts market was valued at $97.8 billion in 2025 and is expected to reach $160.2 billion by 2034, according to a report by MarketIntelo. Defense spending is also expected to take off, according to a report by Spherical Insights, rising from a $2.7 trillion market in 2024 to a $6.38 trillion market by 2035.

James Halley has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Honeywell Aerospace and Honeywell Technologies. The Motley Fool has a disclosure policy.