3 Defense Stocks to Buy in May

The U.S. is stepping up defense spending like never before. This year's defense budget soared past $1 trillion, and proposals aim for as much as $1.5 trillion next year as the U.S. focuses on modernizing and rebuilding its arsenal and expanding its military force.

This "generational" investment is a sharp increase in spending over recent years, and is driven by modernizing defense using artificial intelligence (AI), space superiority, drone dominance, and accelerating missile defense. With defense spending ramping up, here are three defense stocks for investors to scoop up this May.

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RTX is a top defense contractor with a stable aftermarket business

RTX (NYSE: RTX) stands tall as one of the world's largest aerospace and defense companies. Its Raytheon business continues to see robust government demand for its missile defense and surveillance offerings. The company is well positioned to play an important role in the U.S. government's $24.4 billion "Golden Dome" initiative by supplying proven layered defense solutions, including the Patriot, GEM-T, SPY-6, and Coyote systems.

In addition, RTX designs, manufactures, and services large aircraft engines for commercial, military, and general aviation consumers through its Pratt & Whitney business. The company produced the F135 engine, an advanced design exclusively for the Lockheed Martin F-35 Lightning II. As part of this business, RTX has a highly lucrative aftermarket segment, which accounts for roughly half of Pratt & Whitney's segment and 40% of Collins Aerospace's segment, providing it with a steady stream of reliable income.

Looking ahead, RTX stands to benefit from rising defense budgets for the Golden Dome missile defense systems and aerospace components. The ongoing conflict in the Middle East has depleted stockpiles that need replenishing. Meanwhile, NATO nations have committed to increasing their core defense spending to 5% of GDP by 2035, supporting ongoing robust defense spending that should benefit RTX in the coming years.

Honeywell looks to unlock value by spinning off its aerospace segment

Honeywell (NASDAQ: HON) is a diversified industrial manufacturer with a strong defense presence through its aerospace segment. The company is currently undergoing a massive transformation, splitting its conglomerate into three independent, publicly traded companies. It's looking to unlock the value of its parts, similar to General Electric a few years back, when it split up into GE Aerospace, GE Vernova, and GE HealthCare Technologies.

The most appealing part of this spinoff for defense-focused investors will be Honeywell Aerospace Technologies. Here, Honeywell builds auxiliary power units, propulsion systems for business jets, electronic hardware and software infrastructure used in flight decks, and navigation technology, to name a few.

As of March, the company had expanded its defense operations through a $500 million agreement with the U.S. Department of Defense to increase production of critical components, such as navigation systems, actuators, and electronic warfare solutions, to bolster national stockpiles.

Honewell will spin off its aerospace business later this year, so investors looking to get into that could participate by buying Honeywell today. Conglomerates typically trade at a discount due to their diverse businesses; spinning off the aerospace segment could unlock value and drive a higher valuation for the new stock.

Rocket Lab has secured some major defense contract wins

Rocket Lab (NASDAQ: RKLB) is commonly thought of as a space company thanks to its launch services and spacecraft components. However, the company has been leveraging its technology to score some major defense contract wins in recent years.

Major contracts include an $816 million prime contract with the U.S. Space Development Agency (SDA) to design and manufacture 18 missile-defense satellites and a $190 million contract for 20 hypersonic test flights utilizing its HASTE rocket platform. HASTE is a suborbital version of Rocket Lab's Electron rocket, serving as a high-speed delivery system that exposes experimental military payloads to the brutal realities of hypersonic flight.

On top of this, Rocket Lab reported stellar first-quarter results, with revenue of $200 million exceeding consensus estimates, and ended the quarter with a backlog of $2.2 billion. It also signed an agreement to acquire Motiv Space Systems, a California-based specialist in space robotics and precision mechanisms, to help it build further on its space systems business.

Given the growing importance of the space economy, especially for defense purposes, Rocket Lab is another top defense stock for investors to scoop up in May.

Courtney Carlsen has positions in GE Vernova and Rocket Lab. The Motley Fool has positions in and recommends GE Aerospace, GE HealthCare Technologies, GE Vernova, Honeywell International, RTX, and Rocket Lab. The Motley Fool has a disclosure policy.