3 Under the Radar Defense Stocks Riding the Pentagon's Hypersonic Buildout

The Pentagon just asked Congress for the biggest defense budget jump since the Korean war, a whopping 1.5 trillion dollars. Yes, with a T. But, here's a buried treasure inside of the proposal that most investors aren't even watching. Weapons that fly more than five times the speed of sound. Look up the Hypersonics stock right now. And, almost every headline points to the exact same name. And, I ran it through our quant ratings system and let me just say this, it's probably not the strongest place to put your money. However, there are stronger stocks out there that could benefit from this very real and imminent catalyst. I've identified three of them and I'm going to share them with you today. So, stay tuned because one of them is a small supplier that almost no investors are watching right now. Hi, I'm Jacob Wade. I'm a financial coach that helps high earners retire early. And, if you like timely financial news just like this one, hit the thumbs up button below because it lets me know to keep making more videos just like this one. So, let's break down why this budget move should actually matter to your portfolio. So, the White House just proposed 1.5 trillion dollars in total defense spending for 2027, which is a 44% jump from this year. JP Morgan calls it the largest single year defense increase since 1951, back when the country was gearing up for the Korean war. That's not a rounding error. That's the kind of number that reshapes entire industries. Now, I'm going to be straight with you here. This is a request. This is not a done deal yet. Congress still has to move it through appropriations and that process can be slow. But, here's what should get your attention regardless. One category inside this budget is growing faster than almost anything else the Pentagon spends on, Hypersonics. Now, why should you care here? Well, because China just fielded what the Pentagon calls the first conventional missile on Earth with intercontinental range, one reportedly capable of reaching US bases on Guam, even Hawaii. Now, Russia already has hypersonic weapons in active combat use, and the US has spent years racing to close that gap. And this budget is the biggest catch-up move yet. So, here's the translation for you as an investor. When a $1.5 trillion budget puts one category ahead of almost everything else, that's where the money is about to start flowing. And it's already started. Lockheed Martin is seeking nearly 400 million just for its new hypersonic weapon. And Leidos just landed a $2.7 billion Army contract to take a hypersonic program into full production. Billions of dollars moving to a handful of publicly traded companies in a category that almost nobody's screening for yet. So, let's find out who actually benefits here and why it's not really the obvious pick that you think it is. Now, let me just reveal the trap here, or why the obvious pick isn't perhaps the actual best one here. If you read anything about hypersonic stocks this year, you've probably seen one name over and over and over again. It's Kratos, ticker symbol KTOS. And I get why. Kratos has guided its hypersonics business to roughly double to about $400 million in 2026, and they're on pace to grow another 75% to around 700 million by 2027. That's a real fast-growing number, and it's the kind of story that gets a lot of attention for its stock. But attention isn't the same thing as quality. So, I ran Kratos through the Zen ratings system, which rates every stock an A through an F based on seven different components: value, growth, momentum, sentiment, safety, financials, and an AI-driven signal. Now, Kratos comes in this video with an overall Zen rating of a C. And as our editor-in-chief Steve Reitmeister says, "C isn't a buy-worthy grade." In fact, for him, it means see you later. And by the way, Steve does have a lot of great stuff to say about different stocks. So, if you want to hear it for free, you can actually sign up for his weekly live training sessions. They start They're every Monday at 7:00 p.m. Eastern. And you don't have to pay, but you do need to reserve a spot. So, you could do that now at wallstreetzen.com/live. All right, so back to Kratos. Now, its so-so Zen rating is backed up with similarly middling component grades, which are seven additional grades on key fundamental areas for each stock that we track. So, its growth component, for example, only grades out at a B, which which is solid but not that standout letter grade you would expect from the headline number. And things actually get worse from here. In particular, the momentum and its AI-driven component, which is our proprietary component that uses AI to identify stocks with the highest likelihood of outperformance, both of those come in at a D. And in plain English, the growth story might be real, but right now the stock itself is flashing warning signs that the growth story alone doesn't actually capture. And this is exactly the kind of gap between exciting narrative and what the underlying data says that is built into this system to catch. So, we went back to the data and pulled every stock in the defense and aerospace supply chain with a Zen rating in the top 5% of all stocks in our 4,600-plus stock database or higher. This is the A tier in our quant ratings system, and here's what came out. So, the first one with an A rating is one you would probably expect to see on this list, Lockheed Martin, which is ticker symbol LMT. Right now, Lockheed Martin has a Zen rating of an A, which is the equivalent of a strong buy recommendation. So, Lockheed reaffirmed its fiscal year 2026 guidance of 77 and a half to 80 billion dollars in revenue and earnings per share of $29.35 to $30.25. That's management itself protecting real growth, not just an analyst's hope here. And it's also carrying a $194 billion backlog, more than two and a half years of sales already locked in, which matters because a huge chunk of Lockheed's near-term business isn't speculative business. It's actually already under contract. And despite all that, the stock isn't priced like a hype trade. They actually trade at a forward PE of around 17 and has a dividend near 3%. So, you're actually not overpaying to get in on this and you get paid while you wait. And on top of that, it's directly in line for the Hypersonics dollars that I mentioned earlier, nearly 400 million for its new Hypersonic weapon, plus 245 PAC-3 MSE missiles in the Pentagon's request. These, again, aren't hopeful projections. They're already requested budget line items. And Wall Street agrees here. Seven analysts currently cover the stock and the consensus lands at a buy recommendation, which again lines up with Zen Rating's own strong buy call. Now, the most bullish analyst call here is from Charles Minervino at Susquehanna, who ranks in the top 3% of Wall Street analysts by track record. And his price target implies more than a 20% upside from where the stock sits today. Now, on the Zen Rating's breakdown, Lockheed doesn't have one flashy standout component here. Safety, financials, and its AI-driven signal all grade out at a B. And that consistency across the board is exactly what pushes the overall rating to an A. This is a name where the fundamentals, the backlog, and the budget tailwind are all pointing in the same direction. So, if you want direct Hypersonics exposure from a company that isn't relying on one growth narrative to carry the entire investment case, Lockheed is really the anchor name here. Now, let's get on to some less obvious names that actually have some exciting potential. And real quick, if you get value from videos like this, consider subscribing to the channel. We do this kind of real-time market research every single week and I'd love to have you back for the next video. All right, let's talk about the next stock pick here, which is Sifco Industries, ticker symbol SIF. And if you've never heard of this company, you're not alone. Now, Sifco Industries is a Cleveland, Ohio based manufacturer of forgings and machined components for the aerospace and energy markets. The physical parts that go into engines and structural systems, not the finished weapon itself. And with a market cap of only around 161 million dollars, it's about as far from a household name as this space gets. But, what's cool is Sifco comes into this video with a Zen rating of an A. And on the breakdown, growth and momentum grade out at an A, the strongest combination on this entire list. And the underlying numbers here back it up. But, it hasn't been a straight line. Sifco actually posted a loss for the fiscal year that ended last September, but the trend is clearly turned around. Revenue for the trailing 12 months came in at 95.3 million dollars. Growth accelerated at over 14% in the past year, and the most recent quarter earnings jumped 48% from the quarter before. The company's also getting more efficient with the capital that it already has. Return on capital employed has climbed to just over 16% up from the negative territory three years ago. And now running ahead of the industry average of 11.4%. And return on assets tells the same story here. Sifco is running at 9.8% versus a 5.64% average across the aerospace and defense industries. But, here's the standout that really caught my eye here. When I stack Sifco up against other small aerospace and defense names, it's one of the only ones that is actually profitable. Several comparable micro caps in this space are currently posting losses ranging from roughly 9 million to nearly Sifco, on the other hand, posted 7.4 million in positive earnings over that same period. And the stock has started to notice. Shares are actually up more than 430% the past year, including a 58% move in just the last three months alone. Now, I'll be straight with you here. Sifco is thinly covered on Wall Street. So, don't expect a wall of analyst research to confirm any of this stuff. What you do have is a small, increasingly profitable name sitting inside the same defense supply chain as the primes that we just talked about. And it cleared the same strict A-tier screen that flagged Kratos as a problem. So, SAIC-A isn't a name you're going to see on the financial news every day, but that's kind of the point here. It's the definition of a stock flying under the radar with fundamentals that do the talking. And speaking of talking, if you like stock talk like this, I want to again remind you just check out Wall Street Zen's no-cost live training sessions. You can join our editor-in-chief Steve Reitmeister on Mondays at 7:00 p.m. Eastern time. And he doesn't just talk about what he's buying, but how he's actually finding the stocks that he chooses so you can do the same in the days and weeks ahead. And he also shares his trader of the week combining the best of Zen ratings with his 40-plus years of investing experience. So, if you're liking this type of content, I strongly recommend just pause the video for a minute and register for free at wallstreetzen.com/live or if you have your phone on you, just scan the QR code on the screen right here and sign up for free. We'll see you on Monday at 7:00 p.m. Eastern time. All right, the last pick on the list is a supplier, not the one actually building the hypersonic missiles. And it's the one that I'd point to first if you only had time to research one of these stocks after the video. It's Moog, which is ticker symbol MOG.A. They design and manufacture precision motion and fluid control systems for aerospace, defense, and industrial applications. Think the actuators and control systems that physically steer and stabilize missiles and aircraft in flight. It's a $12.35 billion company, which makes it the largest of the three names in this video after Lockheed here. But here's something worth noting. Our quant system currently rates the entire defense industry as a D overall. Moog is one of the exceptions standing out from that average. It comes in at a Zen rating of an A. Now, momentum is the standout component by far, grading out an A on its own and the stock itself backs that up. Shares are up more than 101% over the past year and nearly 30% in just the last 3 months even after pulling back roughly 8% over the past month. And when you see a pullback inside a longer uptrend that's often exactly when a name like this gets a second look. But this isn't just a momentum story. The underlying business has been compounding for years. Earnings grew 76.6% just in the past year but 111% every year for the past 3 years. And if you go back over a decade Moog has grown its earnings by 258% cumulatively and revenue has kept pace too growing faster than the aerospace and defense industry average over the past 5 years. On a $4.3 billion revenue base the company is now generating close to $380 million in actual earnings and Wall Street is honestly just as convinced on this stock. Both analysts currently covering this stock rate it as a strong buy. A rare case where the human consensus and our quant model lands on the exact same call. Now the higher of the two price targets here comes from JP Morgan's Tohaiko Sano who just initiated coverage implying an upside of 30% or more though he currently ranks in the bottom 10% of Wall Street analysts by track record so just take note of that. Now the more seasoned call comes from TD Cowen's Gautam Khanna who ranks in the top 10% of Wall Street analysts by track record and he maintains his own strong buy with an upside of about 15%. Now one thing worth flagging just for balance here is the company insiders have sold more shares than they've bought over the past 12 months. And again that's fairly common after a stock this size roughly doubles in 12 months but it's worth knowing going in. So if Lockheed is the direct way to play the hypersonics budget And Sifco is the sort of higher risk, higher upside supplier bets. Moog is the middle ground, a specialized components business sitting inside a defense budget that's about to grow faster than it has in 70 years. Now, before we're closed, I want to share two more names that cleared the same A-tier screen if you want to keep digging in a bit more after this video. One is Astronics Corporation, ticker symbol ATRO, which supplies aerospace electrical and lighting systems. And the other is Science Applications International Corporation, ticker symbol SAIC. And it provides engineering and IT services across defense programs, including missile defense. Now, neither is a pure Hypersonics play the way that three names above it are, but both are legitimate ways to lean into the same defense budget tailwind. So, here's the big picture. The Hypersonics arms race isn't a future story. It's a budget line that's already growing tied to a $1.5 trillion request. That's the largest single-year defense increase in more than 70 years. Now, the mistake most investors are going to make is reaching for the one name that everybody's talking about without actually checking the underlying business that supports it. I've given you several names with superior fundamentals. My suggestion is you just add them to a free watch list on wallstreetszen.com so you can stay up to date on the latest data and information. Now, I'd love to hear from you. What do you think of accelerated defense spending? Are you all in on any of these picks or do you have another one to add to the conversation? Drop a comment below so we can talk about it. And if you want to see another imminent government defense catalyst in action, check out my recent video on the government's big $54 billion