Military Industry Stocks Investment Guide: Future Growth Opportunities from a Geopolitical Strategy Perspective

Global instability has become the new normal. Conflicts in Ukraine and Russia, Middle East issues, Taiwan Strait tensions, and other regional disputes are frequently unfolding, prompting countries to reevaluate their defense strategies. Behind these changes, a long-term upward investment theme has emerged—the rise of military-industrial stocks.

Why talk about military stocks now?

Unlike traditional warfare relying on manpower accumulation, contemporary conflicts increasingly depend on technological advantages. Drones, precision missiles, information warfare, and space technology have become new forms of warfare, driving national defense budgets higher.

Military expenditures in the US, China, Taiwan, Europe, and America are all continuously increasing. Professional estimates predict that global defense spending will maintain steady growth over the next five years. What does this mean for investors? A long-term, highly certain, and deeply moat-protected profit opportunity.

The essence of military stocks: what qualifies as a military stock?

Broadly speaking, military stocks refer to any commercial entities related to national defense, ranging from large weapon systems to small military supplies. The focus is not on product scale but on customers—if the main clients are the Department of Defense or government agencies, even if they supply steel cups or military uniforms, they are classified as military stocks.

However, a key indicator often overlooked when investing in military stocks is the proportion of military business.

Take Lockheed Martin (LMT) as an example: over 80% of its revenue comes from military contracts, making it a typical pure military stock. But companies like Boeing and Caterpillar are hybrid—civilian business accounts for a significant portion. This difference greatly impacts stock performance. For instance, Boeing’s 737 MAX crises and the shrinking civil aviation market ultimately led to stock declines despite increased military orders, because the civil crisis dragged down overall performance.

Leading US military stocks: who is suitable for investment?

The leader in pure military stocks: Northrop Grumman (NOC)

The fourth-largest global defense manufacturer and the largest radar producer. The company’s advantage lies in its simplicity—almost all revenue comes from the Department of Defense. Its stock price has been stable and rising long-term, with 18 consecutive years of dividend increases, and this year it launched a $500 million share buyback plan to reward shareholders.

The company’s technology is at the forefront in space, missile, and communications fields, aligning with the US’s future “strategic deterrence” focus. As long as global competition persists, orders will not dry up. From the perspective of moat depth and growth certainty, NOC is the most worthwhile long-term military stock.

The safe choice: General Dynamics (GD)

One of the top five US arms suppliers, covering land, sea, and air forces. Unlike others, GD’s civilian division (Gulfstream private jets) has a customer base unaffected by economic cycles, making the company’s overall revenue very stable.

Even during the 2008 financial crisis and the 2020 COVID-19 pandemic, the company’s profits showed no significant fluctuations. This anti-cyclicality has another achievement—32 consecutive years of dividend growth, a feat achieved by only 30 companies in the US. Although its growth rate is not as fast as pure military stocks, General Dynamics is a “retirement stock” in the military-industrial sector, suitable for conservative investors seeking stable cash flow.

The dilemma of military giants: Lockheed Martin (LMT) and Raytheon (RTX)

Lockheed Martin is the world’s largest defense contractor, with long-term stable upward performance. As the main supplier of F-35 fighters and submarine systems, its order outlook is secure.

However, Raytheon (RTX), another military giant, has fallen into trouble. The company supplied powder metal parts for Airbus A320neo that had defects, leading to potential engine part fractures. As the aviation industry recovers, many aircraft need re-inspection, with each aircraft possibly requiring 300 days of maintenance. Lawsuits and customer loss threats have caused Raytheon’s stock to decline throughout 2023. This case illustrates that even with stable military orders, problems in civil business can destroy overall stock performance.

Civilian market crises mask military growth: Boeing (BA)

Boeing is both a civilian aircraft manufacturer and one of the top five arms suppliers (B52 bombers, Apache helicopters, etc.). But the 737 MAX crashes, pandemic impacts, and competition from COMAC have plunged Boeing’s civil division into trouble.

Worse, as US-China trade tensions escalate, the Chinese government is supporting domestic aircraft manufacturers, which will erode Boeing’s monopoly in the global civil market. For investors, Boeing’s military business is stable, but civil market risks are too high—more suitable for bottom-fishing than chasing rallies.

The true face of pseudo-military stocks: Caterpillar (CAT)

Caterpillar is labeled as a military concept stock, but in reality, military revenue accounts for less than 30%. Its core business is industrial equipment, benefiting mainly from post-war reconstruction infrastructure needs. Similar companies include FedEx, which are nominally military stocks but not true military stocks. Investing in such companies requires attention to global infrastructure investment cycles, not military demand.

Taiwan stock military concept: beneficiaries of cross-strait tensions

Taiwan’s geopolitics makes it a focal point, with both sides increasing military budgets. This creates unique opportunities for local military companies.

Lung Teh Technology (8033.TW) was originally a remote-controlled model toy manufacturer. After the rise of drones, it successfully transformed into a military supplier. Its stock price surged significantly in 2022, and with increasing military procurement demand, future momentum is promising.

Hanshyn (2634.TW) features dual-use capabilities for defense and civil applications. Its military sector mainly produces trainer aircraft, while its civil sector provides maintenance services. Compared to Raytheon and Boeing, which face difficulties due to single-product issues, Hanshyn’s diversified business structure makes it more resilient to risks. As industry prospects improve, maintenance demand will grow. From this perspective, Hanshyn’s profit model is more resilient than pure manufacturers.

Why are military stocks worth allocating?

Using Buffett’s investment philosophy, military stocks meet three key elements:

Endless growth track
Conflicts are constants of human civilization; military demand is endless. Unlike other industries that may be disrupted, the long-term nature of military demand is predictable.

Extremely deep moat
Military technology far surpasses civilian tech because the most advanced R&D occurs in military and laboratory environments. National security concerns mean high industry entry barriers, making it difficult for newcomers to break existing patterns. Trust relationships with the defense department take decades to build, and many technologies involve patents or exclusive supply agreements. These factors make leading companies hard to displace.

Geopolitical dividends drive growth
The world is entering an era of regional politics. US “manufacturing return” policies have shifted away from globalization, with many countries increasing military budgets. Unless large-scale disarmament occurs (which is currently very unlikely), military demand will maintain steady growth.

Risks in investing in military stocks

However, there are pitfalls:

First, do not ignore the military business proportion. Companies with low military revenue, even if orders increase, will be dragged down by civil business troubles. The lessons from Raytheon and Boeing are clear.

Second, pay attention to changes in the civil market. Many military companies also operate civil businesses, and cyclical fluctuations in the latter can offset growth in military segments.

Finally, policy changes should be monitored. Although large-scale disarmament is unlikely, adjustments in defense policies and budget reallocations can impact specific companies.

Conclusion

Military stocks are a long-term allocation direction, but thorough research is essential before investing. When evaluating targets, consider the proportion of military business, civil market prospects, financial stability, and industry niche. Choosing companies with high military share, clear business structure, and technological leadership allows you to truly enjoy the long-term benefits brought by geopolitical dividends.