Analysts agree the outlook is bright for the defense sector because U.S. military spending is growing and industry fortunes aren’t tied to the health of the overall economy.

Barron’s recently revealed that Wall Street’s six highest-rated defense stocks are:

1. Curtiss-Wright (CW),
2. Leonardo (LDO.Italy),
3. Northrop Grumman (NOC),
4. General Dynamics (GD),
5. Parson (PSN),
6. BAE Systems (BA.UK).

Valuation is a main reason for Wall Street’s buy ratings on these stocks, Barron’s said.

“The six stocks trade for an average of about 13 times estimated 2021 earnings, a discount to other defense stocks and the broader market,” the financial publication explained.

“What’s more, it looks like now might be a good time to get into the sector. The six stocks are down about 20% year to date, trailing behind the market. In fact, all defense stocks are down about 14% year to date.”

Defense contractors like General Dynamics are expected to see much less disruption linked to the outbreak of the coronavirus as most of their revenue is from government contracts, which are considered to be reliable as governments are unlikely to reduce spending during the pandemic, Reuters explained.

For example, the Pentagon, General Dynamics' biggest customer, increased interim payments to defense contractors and is also paying for sick time for quarantined employees, which is expected to buoy the defense industry as the pandemic affects the economy.

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