When was the last time you took a close look at the defense industry? If you are like most investors, you don’t consider the merits of defense stocks nearly as frequently as warranted.

Though the mainstream media doesn’t shine the spotlight on the defense industry, several players are often worthy of your consideration. If your portfolio is underweighted in defense stocks or has no defense stocks at all, it may be time to diversify it with the addition of a military play or two.

Even if the United States does not become involved in an armed conflict in the near future, defense contractors should continue to rake in cash. In particular, investors should zero in on Raytheon (RTX - Get Rating) and Northrop Grumman (NOC - Get Rating). But which is the better place? Read on to find out.

Raytheon (RTX - Get Rating)

RTX formed after the merger of Raytheon Company and United Technologies in the spring of 2020. Located in Waltham, MA, RTX is one of the world’s top defense contractors. The company’s yearly revenue is currently around $74 billion.

Analysts are bullish on RTX, establishing an average price target of $97.06 for the stock. If RTX hits this price point, it will have popped by more than 11%. The lowest target price for the stock is $87, while the highest target price is $105.

RTX has an overall grade of C, which translates into a Neutral rating in the POWR Ratings system. In terms of individual component grades, RTX has a D Quality Grade and Cs in the Sentiment and Stability components. If you would like to find out how RTX grades in the Momentum, Value, and Growth components, you can find out by clicking here.

RTX is ranked just outside of the top half of the Air/Defense Services industry, coming in at number 37 out of 62. You can find top stocks in this industry by clicking here. RTX has a forward P/E ratio of 22.95, which is a little high. RTX has a beta of 1.46, which means the stocks is almost fifty percent more volatile than the market. 

Northrop Grumman (NOC - Get Rating)

NOC dates all the way back to the 1930s, when the company launched as an aircraft business. The business was reincorporated in the 80s as a flying wing tech developer. Northrop Corporation acquired Grumman Corporation in the mid-90s to form the entity now represented by the stock ticker symbol NOC. NOC revenue drivers include electronic systems, space tech, aircraft, system integration services, and information technology.

NOC has a forward P/E ratio of 15, which indicates the stock is undervalued. The ratio makes the stock more appealing when you consider that it is trading merely $8 below its 52-week high of $379. In other words, NOC appears to have solid value at its current trading level. Making NOC all the more appealing is its low beta of 0.84, which means the stock is less volatile than the market.

NOC has an overall grade of and a Buy rating in the POWR Ratings system. The stock has B grades in the Value, Quality, and Stability components of the POWR Ratings. You can find out how NOC fares in the rest of the components, including Momentum, Sentiment, and Growth, by clicking here.

NOC is ranked 8th out of 62 publicly traded companies in the Air/Defense Services industry. Across the prior 175 days, the average price target for NOC has increased. If analysts’ predictions prove true, NOC will hit the average analyst price target of $406.38. A jump to this level represents an upside potential of slightly more than 10%. 

Which is the Better Buy?

NOC is the better buy. NOC has a Buy Rating in the POWR Ratings, while RTX is rated Neutral. NOC is also rated higher in the Air/Defense industry and is the less volatile stock. If you want to add a defense stock to your portfolio, you are better off investing in NOC.

RTX shares fell $1.74 (-2.03%) in premarket trading Thursday. Year-to-date, RTX has gained 20.12%, versus a 15.38% rise in the benchmark S&P 500 index during the same period.

About the Author: Patrick Ryan

Patrick Ryan has more than a dozen years of investing experience with a focus on information technology, consumer and entertainment sectors. In addition to working for StockNews, Patrick has also written for Wealth Authority and Fallon Wealth Management. More...

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