3 Defense Stocks to Watch Amid Rising Middle East Tensions

Rising instability in the Middle East is prompting directly affected nations and their international partners to increase defense readiness. Heightened risks of cross-border conflict, missile strikes or proxy warfare push governments to enhance deterrence capabilities and ensure operational readiness across air, land and sea domains. The companies operating under the Zacks Aerospace-Defense are poised to benefit from the rising tension in the Middle East. 

Demand typically rises for next-generation combat aircraft to secure air superiority, precision-guided missile systems to enhance strike capabilities and layered air-defense networks to intercept incoming rockets or drones. Additionally, more money is being invested in unmanned aerial vehicles for tactical operations, intelligence gathering and reconnaissance, as well as advanced radar and surveillance systems that offer early-warning detection.

The rise in geopolitical tensions often leads to increased military spending, which typically translates into larger contract awards and multi-year agreements. These contracts may include not only the supply of new equipment but also maintenance, upgrades, training and logistical support, creating recurring revenue streams. 

Combined with rising defense budgets, this strengthens cash flow stability and enhances long-term growth prospects for firms that design, manufacture and support advanced military hardware and integrated defense systems.

In January 2026, U.S. President Donald Trump proposed a significant increase in U.S. defense spending, targeting annual military outlays of about $1.5 trillion by 2027, up from the roughly $901 billion defense budget approved for fiscal 2026. This scale of funding provides the Pentagon with greater flexibility to place new orders, expand existing programs and accelerate long-term procurement plans.

Defense Companies in Focus

For defense contractors, such geopolitical conditions create a highly supportive business environment. As governments accelerate procurement to address immediate security needs, companies experience a rise in production volumes across key platforms, components and support systems. Manufacturing lines often operate at higher capacity to meet urgent delivery timelines.

Major U.S. defense companies like Lockheed Martin LMT, RTX Corporation RTX and Boeing BA, largely produce the weapons deployed in the Middle East, from fighter jets to missile defense systems, and rising regional tensions typically lead to a spike in demand for their military technologies. Each of the companies carries a Zacks Rank #3 (Hold) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

In the past three months, LMT, RTX and BA shares have gained 40.7%, 18.9% and 7.5%, respectively, compared with the industry’s growth of 13.9%. 
 

Lockheed Martin is one of the largest defense contractors and supplies several major systems used in the Middle East. Some of its key weapons and systems deployed in the region include the F-35 Lightning II stealth fighter jet, F-16 Fighting Falcon fighter aircraft, THAAD missile defense system. Rising demand for advanced fighter jets and missile defense technologies is expected to strengthen the company’s order pipeline.

LMT’s long-term (three to five years) earnings growth rate is 18.57%. The Zacks Consensus Estimate for 2026 earnings per share (EPS) indicates an increase of 28.9% year over year.

RTX is a major producer of missiles, air-defense systems and precision weapons. Its key weapons and systems used in the region include the Patriot missile defense system, Iron Dome interceptors and Tomahawk cruise missile. Frequent missile attacks in the region drive heavy usage of interceptors and missile defense systems, creating continuous restoration orders.

RTX’s long-term earnings growth rate is 10.16%. The Zacks Consensus Estimate for 2026 EPS indicates an increase of 8.3% year over year.

Boeing plays a major role in supplying both aircraft and precision-guided munitions. Its key weapons and systems used are the F-15 Eagle fighter jet, AH-64 Apache attack helicopter. Ongoing air campaigns and precision strike operations are expected to increase demand for aircraft upgrades and maintenance services.

The Zacks Consensus Estimate for BA’s 2026 EPS indicates an increase of 105.4% year over year. The consensus estimate for 2026 sales indicates an increase of 8% year over year.

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This article originally published on Zacks Investment Research (zacks.com).

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