General Dynamics (GD) Could Be the Best BBB Buy Right Now

Defense stocks are set to benefit from tailwinds provided by the One Big Beautiful Bill Act, which has earmarked roughly $150 billion for defense spending to supplement a military budget of $895 billion.

It doesn’t take a crystal ball to deduce that the biggest defense contractors will be the ones that profit the most from the added spending. However, there’s also the biggest picture to consider — while the trade war has de-escalated, recession concerns persist. JPMorgan, for instance, still puts the odds of a 2025 recession at 40%.

So, how do we kill two birds with one stone? We find a defensive defense stock (pun intended). In this case, this entails identifying a safe pick trading at a cheap valuation — preferably one that has already secured a bevy of new, long-term defense contracts.

Enter General Dynamics (NYSE: GD). GD has been one of the largest contractors for years — and it meets all the criteria we’ve outlined.

We’ll take a top-down approach this time. First things first — General Dynamics has an overall Zen Rating of B. If you’re not familiar with what this signifies, it means that our quant rating system, which takes into account 115 proprietary factors, gives the stock a B rating — equivalent to a Buy rating.

A Zen Rating of B is given to stocks that fall in the top 20% of the more than 4,600 equities that we track. Such a rating has historically corresponded to average annualized returns of 19.88%.

To be more precise, General Dynamics currently ranks in the top 9% of stocks. Each Zen Rating is a composite score derived from 7 Component Grade ratings — and we’ll have to look at them to understand why it ranks so highly.

First, let’s deal with Safety, which measures stock price stability compared to peers and the predictability of revenue inflows and earnings. In this area, GD ranks in the 97th percentile — equivalent to or better than 97% of equities.

The next area to consider is Value. General Dynamics shares are currently trading at a price-to-earnings (P/E) ratio of 20.81x. For the sake of comparison, the market average is currently 30.8x — and the US Aerospace & Defense industry average is 36.57x.

Alright — it’s clear that we have a safe, undervalued stock on our hands — but is there room left to grow? Deutsche Bank’s Scott Deuschle (a top 5% rated analyst) issued the most up-to-date coverage of the stock, and he certainly thinks so — in a note dated July 8, he raised his price target from $298 to $342, which implies a decent 12.73% upside compared to GD’s current price.

Up to this point, we’ve established GD’s credibility as a conservative, defensive pick — but the increase in defense spending augured by the BBB might very well provide the boost that the stock needs to provide outsized gains.

In fact, the process might have even already started — in June alone, General Dynamics secured nearly $3.5 billion in defense contracts. What’s more, the deals are quite diverse — spanning everything from submarines and Abrams tanks to IT services.

We won’t go into great detail here for the sake of brevity — but the deals include:

• $1.85 billion for long lead-time materials and preliminary construction of Virginia-class submarines 
• $987 million for component development and supplier enhancements related to submarine production.
• $396 million for IT enterprise services supporting U.S. Special Operations Command.
• $150 million for research and development of the Abrams Engineering Program.

We’d also be remiss not to mention that GD is the highest-rated major defense contractor — while other companies with much smaller market caps rank more highly, the other industry titans, such as Lockheed Martin (NYSE: LMT) and RTX (NYSE: RTX), don’t even come close.

In the end, it boils down to this — at its present valuation, General Dynamics is poised to attract investor attention, particularly after the company’s next earnings call, due July 23. At the same time, the downside risk appears to be quite limited. With solid fundamentals and a steady contract pipeline, GD seems like a great play for long-term investors intent on hunting for stability without sacrificing growth.

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