A $1.5 Trillion Defense Budget Is on the Table. Here's the 1 Defense Stock I'd Buy First.

Geopolitical pressures, from the Iran war to U.S.-China conflicts and the Russia-Ukraine war, provide plenty of reasons for defense stocks to have tailwinds in 2026. That's because these pressures are likely to increase global defense spending. At home, the fiscal 2027 National Defense Authorization Act, passed by the House on July 22 but still awaiting a vote in the Senate, proposes a record $1.15 trillion in U.S. military spending.

Plenty of defense stocks benefit from that extra spending, but one of the best buys right now is Honeywell Aerospace (NASDAQ: HONA). The company, which spun off from Honeywell Technologies in late June, is trading down more than 21% since its spinoff, falling from $220 per share to roughly $157 as of Sept. 11.

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There were valid reasons for the stock's tumble, mainly a trim to full-year guidance in the second-quarter earnings report. However, at its current share price, the stock is more than a bargain. Here's why I like this company.

Honeywell Aerospace is a steal at its current price

Even with its trimmed full-year guidance, the stock trades at a low valuation relative to peers, roughly 21 times forward earnings. It's as if investors are still tying the company to the drag its parent put on its margins and not seeing it for what it is -- a pure-play aerospace and defense company.

Honeywell supplies engines, mission-critical avionics, and control systems to commercial and defense customers. Global flight hours, fleet use, and ongoing aircraft delivery backlogs at major original equipment manufacturers continue to drive demand for high-margin repair, maintenance, and overhaul (MRO) and replacement components, such as auxiliary power units, avionics, and flight controls.

Yes, its second-quarter earnings were uneven. It reported $4.5 billion in revenue, up 5% year over year, but earnings per share were $0.78, down 71%. The company trimmed its full-year organic growth guidance from 7%-9% to 4%-5%. It also narrowed its full-year earnings before interest and taxes from a range of $4.65 billion to $4.75 billion to a range of $4.35 billion to $4.45 billion. Most of the reasons for the lowered earnings expectation involved spinoff costs, which will eventually go away.

Analysts are optimistic about the company's future, with an average price target of $213, about 35% above its current price.