The Next Palantir? 4 AI Defense Stocks Insiders Are Loading Up On

While everyone's chasing palenteer at nosebleleed evaluation, the actual money in defense AI is flowing somewhere else into the missiles, the radars, the secure networks, and the electronics that AI has to run on. Now, the Pentagon just signed 7-year munitions deals worth tens of billions of dollars. And almost none of it is going to Palanteer. So, today I want to share with you four defense stocks that are getting that money. One has a $289 billion backlog. One is buying back nearly 10% of itself. And the last one just set records on every line of the income statement. And five insiders, including the CEO, bought stock the same day. But before we get into all of that, feel free to hit the like button below. It helps YouTube push this kind of datadriven breakdown to more investors just like you. Now, let's start with Palanteer itself because you need to understand what's already priced in before we can actually talk about what isn't. So, let's get into it. Now, look, I get the Palanteer obsession. What they built is real. They're the software layer between the messy government data and decisions people can actually act on. And that's very valuable. And it's why the stock currently commands a premium. But, let me show you what our system says about the stock right now. And to do that, I need to explain to you what Zen ratings are. because really they're the backbone of every single pick that I'm talking about today. Now, the Zen ratings run 115 factors on every single stock, the ones proven to drive stock price performance, and roll them into one grade, an A through an F. Now, an A is a strong buy recommendation. It's the top 5% of the market. A B is a buy recommendation. C is the middle 60%. Now, historically, A-rated stocks have averaged close to a 30% annual return. And here's where Palanteer lands right now. It's an overall C-grade. It ranks right near the middle percentile of more than 4,600 stocks, which is really a fancy way of saying roughly half the stocks that we track have better fundamentals than Palanteer itself. Now, the Zen ratings also let you dig deeper with seven underlying component grades to see the specific areas of strength or softness. Now, its value grade is currently a D. It's ranking in the bottom 13% of the markets on that measure. The story is great. Sure, the price already reflects that story though. So, Palanteer needs flawless execution just to justify the multiple. Now, the four picks that I'm about to share, they just need defense budgets to keep flowing toward AI enabled systems, which they are. Now, the government's AI modernization work is going to contractors trading at 15 times earnings, not 200. So, let's actually get into those. Now, the first one up is a missile defense prime. Now, real quick before that, I should also mention that our editor-inchief discusses this kind of stock market news and his own stock picks in detail during his free weekly live trainings. You can join him live every single Monday for free, but you do have to register to join. So, just scan that QR code on the screen right here with your phone or go to wall streetzen.com/live to sign up. All right, stock number four on our list is going to be Loheed Martin, ticker symbol LMT. Now, Lockheed is on this list because of one specific contract. At the end of July, the US Army handed it a seven-year deal worth up to 58.6 billion dollars for Pack 3 interceptors, the missiles that make the Patriot system work. It's the largest Patriot contract ever signed, and the plan is to triple production by 2030. Now, a month earlier, Loheed signed another 7-year deal, close to $35 billion for THAAD interceptors. Now, here's the AI angle here. A missile shield is only as good as its brain. Tracking hundreds of incoming threats, deciding which interceptor goes where, and doing that all in seconds is a machine learning problem before it's a rocket hardware problem. Now, Loheed has been embedding AI into its radars, its command and control software, and its autonomy programs for years. When the Pentagon buys interceptors at three times the old rate, it's buying the AI layer that aims them, too. And the financials are catching up to the contracts, trailing 12 month earnings or $6.3 billion, up a little over 50% year-over-year. Now, second quarter earnings came in at $1.8 billion, up more than 20% from the quarter before. And management raised its fullear outlook to roughly $80 billion in sales and about $30 in earnings per share. And this is a company that has raised its dividend for more than 20 consecutive years now. Now, Wall Street's best analysts see plenty of room for growth here. Gavin Parsons at UBS, who ranks in the top 20% of analysts that we track, upgraded Lockheed to a strong buy recommendation on September 8th with a target of more than 25% above the current price. Charles Manurvo at Susraana, who's in the top 3%, has a strong buy recommendation as well with a target more than 30% higher. Interestingly, even Christine Log and Morgan Stanley a top 10% analyst who only rates Loheed Martin at a hold still has a target nearly 30% above where it trades today. Now let's look at the Zen ratings. Loheed earns an overall B rating which is a buy recommendation and ranks in the top 7% of all stocks. Now looking at the underlying component grades here, the standout grades are from our AI factor where it ranks in the top 11% of stocks that we track. This doesn't measure how much AI a company uses, but rather it's our AI or algorithm that actually helps detect subtle signals of future outperformance. Value of this stock ranks in the top 8%. It's not a bloated valuation like Palanteer is. Financials is also in the top 8% which means it has a solid balance sheet. And the standout here is actually safety in the top 7% of all stocks, which is exactly what you expect from a company that just added a 7-year 58 billion order to the books. Now, there is one risk I got to call out here. The earnings history has been kind of lumpy over the past 3 years. It actually shrank around 17% a year, mostly from charges on classified programs. Now, those charges look to be behind them, but that's the thing to watch when they report on October 20th. You make sure you put that in your calendar. Now, here's what I like most. Nobody's going to get excited about Lockheed at a cocktail party. And that's kind of the point here. The market is pricing it like a slowm moving defense prime. And it just locked in seven years of demand for the exact product AI enabled missile defense systems run on. Boring companies with 58 billion order books tend to surprise to the upside. So, next up we have RTX. Ticker symbol, you guessed it, RTX. But most people call the company Rathon. Now RTX is on the list because it owns the sensor layer of modern defense. Rathon builds the Patriot radar and launcher that locked interceptors fly out of, plus the tomahawk, the AM RAM, and the sensors on almost every American ship and fighter jet. And modern radar just doesn't see these things. It classifies them, filters out decoys, and actually hands targets to weapons faster than a human operator could. That is machine learning running on hardware. And Rathon is one of maybe three companies in the world that actually builds it at scale. Now, here's what that looks like in the actual numbers. Backlog is $289 billion, up more than 20% in a year, which is more than three years of revenue already signed and on the books. In the second quarter, sales grew 14% and 60% organically. Adjusted earnings per share grew a little over 20% and free cash flow was 2.9 billion in a single quarter. Now, margins also expanded in all three segments and management raised guidance across the board. Now, when you step back, the trend is perfectly clear here. Earnings grew 25% last year, roughly 80% a year over the last three years. And analysts see another 50% plus over the next three years. This is one of the few large cap defense names where Wall Street Consensus is actually a strong buy. Five of the nine analysts covering it say so. Kenneth Herbert at RBC Capital is a top 2% of all of our analysts that we track and has a target of more than 25% above the current price. And Charles Manurvo again at Saskcoana is a top three percent analyst that has a strong buy recommendation with more than a 20% upside. And on the Zen ratings, RTX actually earns an overall B-rating a buy and ranks in the top 7% of all stocks tracked just like Lockheed. And when you look at the underlying component grades, growth ranks in the top 19%. That's the backlog converting into earnings. And our AF vector actually puts it in the top 14%. So, the algorithm is actually picking up signals of outperformance ahead. And the standout here is really momentum. It's in the top 13%. The stock is already up nearly 30% over the past year. And even after last month's pullback, our system still thinks the trend has some legs behind it. Now, one risk to call out, it earns a value grade of a C. And for a very real reason, RTX currently trades at 34 times trailing earnings. And when a quarter disappoints, that premium compresses very, very quickly, which is what happened last month actually when the stock pulled back about 11%. But look at what that pullback gave you. The same $289 billion backlog, the same raised guidance, the same strong buy consensus and about 11% cheaper than it was in July. Thanks. When the fundamentals don't change and the price does, that's that's not a warning sign. That's an entry point here. Now, there are two stocks left. And hint, they're both rated an A. Now, if you are getting value from this video, consider subscribing to this YouTube channel. We do this kind of grounded datadriven research every single week, and I'd love to have you back for the next video. All right, stock number two on our list is going to be S AIC, which is also the ticker symbol S AIC. Science Applications International is what it stands for. Now, SIC is on the list because it's the company the government actually calls when it wants AI. When the Army, the Navy, the Air Force, or the intelligence community needs to modernize a a network, stand up a secure cloud or or build AI into a mission system, SIC is often the one that's actually doing the work. They call themselves the mission integrator, and it really fits. And they're leaning in. In April, SIC put Paul Aramenco, a former Airbus chief technology officer and one of the better known AI engineers in aerospace onto its board alongside Admiral Mike Rogers, the former head of the NSA. That is a board built for what the government is buying next. Now, let's look at the numbers. SIC guides to more than $600 million of free cash flow this year on a market cap of only about 5.3 billion. That's a free cash flow yield of 11% actually a little more than 11%. And recent second quarter results that were reported on August 31st beat expectations and management raised fullear guidance for revenue margins and earnings per share. Now, the backlog here is $22.1 billion. And during the quarter, they won a $400 million recompete with the US intelligence agency and $330 million arming contract for modeling and simulation, which is where a lot of defense AI gets built and actually tested. And after the quarter closed, they actually added a $740 million Homeland Security award. So, they're winning contracts here and they're actually using all that cash. Diluted shares fell actually from 46.8 million to 42.8 million in just a year, down nearly 10% with $90 million of buybacks in this quarter alone. And on the insider side, let me be precise here. Two executive vice presidents bought shares on the open market this year in both January and April. Now, those are small purchases and insiders overall have been net sellers over the past 12 months. So, I want to be clear, but the real buyer of SIC stock is SIC itself. Now, the analyst coverage on this one is kind of a mixed bag. The consensus among seven analysts is a hold recommendation, but several bullish voices are calling for 20% or greater upside in the coming year as of the week that I'm recording this. Now, when Wall Street can't make up its mind, our Zen ratings can help you get the fuller picture here. And in this case, our system actually disagrees with the fence sitters. SIC earns an overall A rating, a strong buy recommendation, and ranks in the top 4% of all stocks. It's also the number one ranked stock in the entire information technology services industry out of 57 different companies. Now, looking at the component grades, it's not hard to see why it earns that elite rating. Sentiment ranks in the top 13%. institutions are actually positioned in this stock even if the analysts aren't. And our AI factor puts it in the top 11%. Safety ranks in the top 3% which is what a $22 billion backlog of a multi-year government contract will buy you. So this is considered a safe buy. But the standout here is value. It's in the top 2% of all stocks. It trades at under 15 times earnings and about 2/3 of sales. That's the opposite end of the spectrum from Palanteer. Now, one risk I need to call out. Bookings were a bit light this quarter. Book to bill came in at 0.6, meaning they're actually burning backlog a bit faster than they're replacing it. And the awards announced after quarter end will help, but it's the number that you do need to watch here. And here's the thing about a stock that nobody on Wall Street wants to recommend. When the numbers finally force an upgrade and an 11% free cash flow yield with rising guidance tends to do that, the move happens very quickly because nobody is positioned for it. I'd rather be in early to that than wait for consensus to actually catch up to this stock. Now, before we get into the last stock, one quick thing here. If you want to stay one step ahead of the market, then join us live every single Monday. That's where we share the updated market outlook and trading plan to potentially outperform. That's also when my YouTube co-host and our editor-inchief Steve Wrightmeister shares his trade of the week based on our proven Zen ratings quant and his greater than 40 years of investing experience. Now, it's a free event, but you do have to register for it. So, just go to wall streetzen.com/live, or you can click the link in the description and sign up. Or heck, if you have your phone on you, just scan the QR code on the screen right here. You can even just pause the video for a moment, sign up, and then finish it up. So, once you're done signing up, I will see you on Monday. All right, finally, we've got our number one pick, which is Astronics, ticker symbol AR O. Now, I'll admit this one actually kind of surprised me, too. Astronics is a $3 billion company that most investors have never heard of, but it's on this list for two very real reasons. First, it makes the electrical power systems, lighting, and connectivity hardware inside aircraft, plus automated test systems for military radios and electronic warfare equipment. So, every smart sensor, every cockpit display, every onboard computer on an AI enabled aircraft needs clean power and a way to talk to the rest of the platform. That is Astronics. And second here, it's the insiders. On March 3rd of this year, five Astronics insiders bought stock on the very same day. The CEO, Peter Gundam, picked up shares worth about $1.1 million. The head of the aerospace division bought close to $900,000 worth. Another insider bought over $900,000 worth. And if you add it all up, it's well over $3 million of buying in a single day. And our data shows that Astronics Insiders have bought more shares than they've sold over the past 12 months. That's the opposite of what you see at most defense stocks after a big run. And this stock is actually up nearly 100% in the past year. So, here's what those insiders were probably looking at. In the most recent quarter, sales hit a record $260 million, up nearly 30% year-over-year. Adjusted operating margin went from about 9% a little over a year ago to over 16%. Bookings were a record $36 million. Backlog was a record $780 million, which is the third straight record quarter year, and more than 80% of it converged to revenue within the next 12 months. Quarterly earnings also came in at $35 million, up nearly 40% from the quarter before it. Return on equity is a little over 50% against a defense industry average that's about 13%. Management raised fullear guidance to more than $1 billion in revenue for the first time in this company's history and told investors to expect yet another record Q3. So looking forward, analysts see earnings growing about 40% a year, more than double the defense industry average. That's a roughly 55% increase in earnings per share over the past 2 years. Now, only one one analyst covers this stock, but it's a good one. Gotam Kana at TD Cowan, a top 11% of all analysts, has a strong buy recommendation with a target more than 30% above the current price. So, when a top rate analyst is the only one paying attention, that's usually a sign that you're early here. And the Zen ratings agree. Astronics earns an overall A recommendation, a strong buy recommendation, and ranks in the top one, yes, 1% of all stocks, not 5%, top 1%. And it's the number one ranked stock in the entire defense industry out of 85 different companies. Now, looking at the component grades, Sentiment ranks in the top 16%. Momentum is in the top 14%, which tells you the market is starting to notice. Financials ranks in the top 7%. And it's no surprise because a 50% return on equity will probably put you in that top 10%. And then the standout here is actually growth which ranks in the top 1% of every single stock that we track. There are more than 4600 stocks in our system and on growth only about 25 of those score higher than Astronics. Now there's one risk here which is valuation. The value grade is a C here and the stock trades at about 37 times trailing earnings. The PEG ratio, which adjusts for growth, is a much more reasonable 1.1, but you're paying for growth to keep showing up. And it is a small cap company, so expect bigger swings than the first three names I talked about. I'm really not worried about that. More than 80% of a record backlog is scheduled to ship in the next 12 months. Management has already told you Q3 is going to be another record, and people with the best view of the pipeline wrote seven figure checks back in March. Everyone's hunting for the next palanteer in software. Meanwhile, the company that builds the plumbing for every AI enabled aircraft is rated in the top 1% of the market and almost nobody's covering it. That is a stock that gets discovered, not hyped. And I'd rather own it before that discovery. Now listen, the AI revolution in defense is real, but the winners won't all be obvious. These four companies I mentioned sit at different layers of the stack, right? the interceptors, the radars, the secure networks and the electronics that actually tie it all together. That gives you some diversification here and none of them trade at Palanteer's insane multiple. Now, is there a winner in this list? Well, I would love to hear from you about that. Leave a comment and let me know what you think. We read all of them and it helps shape what this channel actually covers next in our videos. And if you want to explore more defense stocks that are trending right now, be sure to check out my recent video right here on the forthcoming multi- trillion, yes, trillion dollar defense boom and stocks set to potentially benefit.