3 Under-the-Radar Defense Stocks With Record Backlogs

The landscape of defense spending is rapidly evolving as global geopolitical tensions increase. With the United States planning to enhance its military budget significantly, primarily due to conflicts that demand rapid modernization and procurement of advanced weaponry, investors are keenly watching the defense sector. While major contractors like Lockheed Martin and Raytheon often dominate headlines, emerging companies are also making waves, particularly those with substantial backlogs. This article explores three under-the-radar defense stocks—Allegheny Technologies Incorporated (ATI), Astronics Corporation, and Ducommun Inc.—and analyzes how their record backlogs may reflect future growth or potential pitfalls.

The Context of Defense Spending

Recent conflicts, notably the ongoing tensions involving Iran and other regions, have necessitated an increased military presence and capabilities. As a result, the Pentagon has requested a staggering $1.1 trillion in discretionary spending for fiscal 2027, which includes an eye-popping 188% increase in missile procurement funds. This influx is expected to benefit the aerospace and defense industries, but the distribution of funds isn’t uniform across the sector. Consequently, it’s essential for investors to look beyond the major players and consider smaller firms with promising prospects.

ATI: Specialty Materials Producer with Pricing Power

Allegheny Technologies Incorporated (ATI) stands out due to its unique niche within the defense sector. With a market capitalization of $27.8 billion and approximately $4.5 billion in trailing sales for the last year, ATI is a substantial player.

Recent Transformations

Much of ATI’s recent growth has been attributed to its transformation of the Flat Rolled Products segment into Advanced Alloys and Solutions (AA&S). This shift has positioned ATI as a crucial defense supplier, with aerospace now accounting for more than 44% of the segment’s revenue. The company's ability to produce hafnium and zirconium—two critical materials required for aerospace and military applications—has granted it a competitive edge, as only a handful of firms can meet the stringent quality standards for these materials.

Impressive Backlog and Future Expectations

ATI has strategically redirected its resources to focus on defense orders that require quicker delivery. This decision has led to a record backlog of $4.4 billion, with expectations to deliver 70% of this within the next year. Management's confidence is reflected in their projected sustainable margins for AA&S, anticipated to remain in the mid-20% range.

The technical analysis of ATI’s stock shows a healthy chart pattern with robust support along the 50-day moving average (MA). The stock’s Relative Strength Index (RSI) consistently hovers above 50, indicating strong buying interest. Historically, shares testing the 50-day MA have proven to be a favorable entry point for investors.

Astronics: Cleanest Defense Link but High Leverage

Astronics Corporation represents a compelling opportunity for investors willing to embrace some risk. With a smaller revenue base of around $950 million over the past year, Astronics has nonetheless seen its stock surge over 65% year-to-date, fueled by robust growth in onboard flight hardware and components.

Growth Signals

In its most recent earnings report for the second quarter of 2026, Astronics revealed total revenue of $260 million, with the aerospace segment contributing over $237 million. A book-to-bill rate of 1.18 signifies a healthy demand for its products, and the company boasts a record backlog of $780 million, predominantly in aerospace.

However, the path to profitability is clouded by Astronics' high leverage, with a debt-to-equity ratio of 1.57. This level of debt implies that the company is highly leveraged, which could pose risks if growth falters. Astronics must continue to expand its revenue base to sustain its current valuation, and any slowdown in bookings could lead to negative market sentiment.

Stock Volatility and Trading Potential

The stock has demonstrated a beta of 1.20, indicating that it is 20% more volatile than the broader S&P 500 index. This volatility can create both opportunities and challenges for traders. For instance, in July, Astronics’ stock dipped below the 50-day moving average after a bearish cross on the Moving Average Convergence Divergence (MACD) indicator, highlighting the risks associated with high-beta stocks. While day and swing traders may find Astronics appealing due to its volatility, long-term investors should remain cautious and consider the potential impact of unforeseen market downturns.

Ducommun: Strongest Backlog Masks Guidance Deceleration

Ducommun Inc. exemplifies the need for a closer examination of backlog numbers. As an electronic systems manufacturer with a market capitalization of $2.5 billion, Ducommun has posted impressive backlog figures; however, the quality of those orders and the company's guidance raise questions.

Analyzing Backlog Figures

Ducommun currently boasts a backlog of $1.16 billion, and its quarterly book-to-bill rate of 1.4 surpasses that of Astronics. The company reported a 12% year-over-year revenue increase for Q2, reaching a record $224.5 million, with missile revenue soaring 68%. Despite these promising figures, management’s guidance during the fiscal Q2 earnings release tempered enthusiasm.

While the growth in backlogs is a positive indicator, it does not guarantee that these orders will translate into revenue in the near term. Ducommun has reiterated previously stated forecasts, projecting modest growth for the remainder of fiscal 2026, primarily due to commercial destocking and aerospace production being pulled forward.

Potential Risk Factors

Even though Ducommun's stock has risen over 70% year-to-date, recent trading patterns show a concerning downward trend. Following the earnings report, the stock has closed lower than it opened in 11 of the last 12 trading sessions, and it has breached the critical 50-day moving average support level. The RSI has also moved below the 50 midpoint, signaling that selling pressure may dominate the stock’s momentum in the short term.

Investors should brace for volatility as they await the next earnings report scheduled for November 5, which could provide further insights into the company’s performance and guidance.

Conclusion: Weighing the Risks and Rewards

Investing in defense stocks like ATI, Astronics, and Ducommun presents both opportunities and risks. While each company boasts impressive backlogs indicative of future growth potential, various factors—including market sentiment, financial leverage, and management guidance—could significantly influence profitability.

Key Takeaways:

• ATI has a unique niche in hafnium and zirconium production, with a strong backlog and pricing power that could enhance margins.
• Astronics offers high growth potential but carries significant risk due to its high leverage and market volatility.
• Ducommun presents a strong backlog but raises concerns with its guidance, revealing the complexities behind the numbers.

As defense spending continues to rise, savvy investors must conduct thorough research and remain aware of the broader implications affecting the defense sector. Understanding the nuances of each company's operational strategies, market conditions, and financial health will be crucial in making informed investment decisions.

In a rapidly changing geopolitical landscape, the potential for growth is substantial, but caution is warranted as investors navigate this dynamic market.