Al Root
Even though just about every defense stock has gone up lately, investors should still pay attention to what the so-called smart money is doing.
Defense spending worldwide has been rising, taking stocks with it. Coming into the week, the iShares Aerospace & Defense ETF was up about 48% over the past 12 months, almost 34 percentage points ahead of the S&P 500.
Some stocks did better than others. The push to modernize with drones led stocks such as Kratos Defense & Security Solutions and AeroVironment to outperform. That pair was up 209% and 55% over the past 12 months, respectively.
Drones are great, but "the new smart-money investor in defense is focused on national security supply chain bottlenecks," wrote Stifel analyst Jonathan Siegmann in a Sunday report, adding there is a private-equity investor operating at the Defense Department.
Steven Feinberg, a co-founder of Cerberus Capital Markets and a deputy defense secretary, is responsible for overseeing strategic priorities that have led his department to invest in L3Harris Technologies' missile business and rare-earth miner MP Materials.
"We see the DoW all-in on a commitment to on-shore and 'friendshore' (rerouting supply chains to allied nations) critical national security materials and electronics," says Siegmann, referring to the Department of War. He expects more deals similar to those for MP and L3Harris to be announced in the coming weeks.
"The potential for the most dramatic equity gains will be for those investors positioned in companies before they are tapped by the DoW as a national champion of a particular critical national security bottleneck."
He has two Buy-rated names for investors to consider. The first is nLight, a pure-play laser weapon stock.
"What is important to laser weapons generally and nLight specifically is how the technology is underpinning new priority investments such as missile-defense (Golden Dome), counter-drone operations, and new naval surface ships," Siegmann said. His target for the stock price is $60.
nLight stock rose 5.4% on Monday, closing at $48.08, while the S&P 500 and Dow Jones Industrial Average gained 0.5% and 1.1%, respectively.
His second stock is Kopin, a maker of specialty displays. "We believe Kopin's participation in the Army's new AR/VR headset program will drive a near tripling of revenue within five years," wrote Siegmann. His price target is $5.50 a share. Kopin stock closed at $2.59 on Monday, up 1.6%.
Those are two stocks for investors to start with. Two questions should underpin the search for new names. Do a company's products boost the capacity of a new technology, or does the business make the U.S. less dependent on parts and raw materials from overseas?
A "yes" to both would be even better.
Write to Al Root at allen.root@dowjones.com
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(END) Dow Jones Newswires
February 02, 2026 17:02 ET (22:02 GMT)
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