Military Industry Stocks Investment Guide: Future Returns from a Geopolitical Perspective

Why Are Defense Stocks Worth Watching Now?

In 2024, global tensions are intensifying—from the Russia-Ukraine conflict to escalating Middle East tensions. Modern warfare no longer relies solely on manpower. Drones, precision missiles, information warfare—these high-tech weapon systems have become the focus of military competition among nations. Alongside this, national defense budgets are rising year after year.

The underlying logic is simple: if technology can replace human labor, countries are willing to invest money during an aging population era. As a result, many companies producing military equipment are entering a period of growth.

So, which defense stocks are worth buying? How can you determine if a company truly benefits? This article starts from industry characteristics to clarify the investment logic behind defense stocks.

What Are Defense Stocks? Who Is Doing This Business?

The definition of defense stocks is broad—any listed company providing products or services to the military counts. From small items like uniforms and water bottles to large systems like fighter jets and missile systems, as long as the customer is the Ministry of Defense or government procurement agencies, it falls within the defense industry.

But there is a key distinction: Pure defense vs. semi-defense and civilian.

Pure defense companies generate over 80% of their revenue from government military orders, such as Lockheed Martin and Raytheon—top-tier weapons suppliers. Meanwhile, Boeing and General Dynamics are hybrid companies—they produce both military aircraft and civilian aviation, with both segments supporting their revenue.

Why is this distinction important? Because investing in defense stocks is essentially investing in “government demand.” If a company’s civilian business makes up a large proportion, economic downturns or industry shifts could drag down its stock price, regardless of military orders.

Insights from the Russia-Ukraine War on New Directions in the Defense Industry

After the 2022 Russia-Ukraine conflict, the world saw one clear lesson: Drones, precision missiles, and information warfare are more effective than manpower-heavy tactics.

This has changed procurement priorities. Countries are shifting focus from heavy land forces to air and naval power; from buying rifles to acquiring unmanned reconnaissance systems. This directly translates into increased orders: demand for drone supply chains has surged, and missile system upgrades are accelerating.

Meanwhile, the international geopolitical landscape is shifting from “global cooperation” back to “regional political competition.” Although Trump-era trade protectionism has waned, countries’ emphasis on autonomous national defense capabilities remains strong. The result? Defense budgets continue to grow—a long-term trend.

Three Key Indicators for Choosing Defense Stocks

1. Look at Defense Revenue Share

What proportion of a company’s revenue comes from military-related business? This is the primary criterion for judgment.

High-purity companies (defense revenue 80%+):

• Lockheed Martin, Raytheon, Northrop Grumman—mainly supported by defense spending
• Advantages: stable government orders, resistant to economic fluctuations
• Risks: geopolitical peace could lead to defense budget cuts

Hybrid companies (defense revenue 30-50%):

• Boeing, General Dynamics, Caterpillar
• Advantages: civilian business provides a buffer, diversified revenue
• Risks: downturns in civilian markets may impact overall performance

2. Look at Technological Moats

The defense industry has extremely high technological barriers. The most advanced technologies are often first used in military applications and only later adopted by civilians. Moreover, due to national security concerns, new entrants are almost impossible—trust-building with governments takes decades, and contracts are often exclusive.

This means once a company becomes a leader, it’s hard to be replaced. For example, only U.S. companies can produce the stealth bombers made by Northrop Grumman—this is an absolute moat.

3. Look at Civilian Market Prospects

For hybrid defense stocks, changes in civilian business can impact stock prices more than military orders. Boeing is a typical example—after the 2018-2019 crashes of the B737 MAX and the emergence of competitors, its civilian division was severely hit, causing a sharp stock decline, even though military business remained stable.

Detailed Analysis of Six Major Defense Stocks

Lockheed Martin (LMT): Pure Defense Powerhouse

The world’s largest weapons manufacturer, producing the F-35 fighter, Black Hawk helicopters, Apache helicopters. The Russia-Ukraine war led to a surge in related orders, benefiting the company significantly.

Stock Performance: Long-term stable upward trend, with dips mainly due to overall market adjustments.

Investment Rating: ★★★★★

• Strong pure defense attribute, stable government orders
• Ample cash flow, stable dividends, suitable for long-term holding
• Industry leader with unshakable position

Raytheon Technologies (RTX): Second Largest Military Supplier, with Risks

Second-largest U.S. defense contractor, mainly producing missiles (e.g., AIM-9 Sidewinder, Patriot, Tomahawk) and defense systems. However, its 2023 stock performance was poor.

Issues: Its Pratt & Whitney division’s aircraft engines (PW1100G-JM) have powder metal defects, causing Airbus A320neo aircraft to undergo large-scale re-inspections—about 350 planes annually, with each repair taking 300 days. This has led to lawsuits and customer loss risks.

Investment Rating: ★★★☆

• Defense orders are stable, but civil aviation issues are prominent
• Need to wait for repair progress and litigation outcomes
• If financials show controllable costs, a rebound is possible
• Currently cautious, avoid chasing the rally

Northrop Grumman (NOC): Monopoly in Stealth Technology

The world’s fourth-largest defense manufacturer and the largest radar maker. The company leads in stealth bomber technology—only U.S. companies can produce such aircraft globally.

Advantages:

• 18 consecutive years of dividend growth, stable cash returns
• Focused on “strategic deterrence” (space, missiles, communications), aligning with future needs
• As the U.S., China, and Russia upgrade nuclear forces, its GBSD and B-21 projects are core to U.S. military modernization

Investment Rating: ★★★★★

• Strong technological monopoly, deeply tied to national defense
• Low volatility, suitable for conservative investors
• Beneficiary if U.S.-China-Russia competition persists
• Long-term holding preferred

General Dynamics (GD): Perfect Balance of Civilian and Military

One of the top five U.S. defense contractors, supplying all three military branches, and also producing top-tier private jets. Civilian business accounts for 25%, military 75% (Navy 23%, defense info 22%, weapons 18%, mission services 12%).

Stability:

• Resilient through 2008 financial crisis and 2020 pandemic
• 32 consecutive years of dividend growth, one of only 30 U.S. companies with this record
• Civilian aircraft clients are top global wealthy individuals, making it recession-resistant

Investment Rating: ★★★★

• Limited growth potential but deep moat
• Stable income, strong cost control
• Shares regularly repurchased to benefit shareholders
• Suitable for investors seeking steady dividends

Boeing (BA): Civilian Challenges Mask Military Opportunities

One of only two major civilian aircraft manufacturers and a top five U.S. defense contractor. Known for B-52 bombers, Apache helicopters, etc.

Civilian Sector Double Blow:

1. Internal issues: B737 MAX crashes in 2018-2019 led to worldwide grounding. COVID-19 further hit revenue.
2. Emergence of new competitors: Chinese commercial aircraft are rising, supported by policy amid U.S.-China trade tensions, eroding global market share.

Investment Rating: ★★★☆

• Stable military orders, but bleak civilian prospects
• Suitable for bottom-fishing at low prices, not for chasing rallies
• Watch for recovery in aerospace industry and technological substitution risks

Caterpillar (CAT): Semi-Defense Industrial Giant

Heavy industrial equipment manufacturer, with defense accounting for about 30%, mainly supporting industrial machinery. Military applications mainly involve ship engines.

Performance Drivers:

• Construction, mining, energy transportation sectors all grow simultaneously
• Benefits from increased infrastructure investment in China
• Post-war or disaster rebuilding needs also generate orders

Investment Rating: ★★★

• More industrial stock than pure defense
• Outlook depends on global infrastructure investment and raw material demand
• Not suitable as a pure defense investment target

Why Do Defense Stocks Have Long-Term Growth?

1. Sufficiently Long Runway

Human civilization has never stopped fighting. Military demand is endless, making this industry inherently long-lasting.

2. Deep Moats

The most advanced technologies are first applied in military contexts, with civilian adoption delayed by years. Entry barriers are extremely high—trust takes decades to build, and contracts are often exclusive, making it hard for new competitors to break in.

This means once a company is a leader, it’s difficult to displace. For example, only U.S. firms can produce Northrop Grumman’s stealth bombers—an absolute moat.

3. Growing Momentum

Global return to regional politics and tense geopolitics are the new normal. Defense budgets are rising annually, not just short-term fluctuations but a long-term trend. As long as there is no large-scale “disarmament,” growth prospects remain solid.

Pitfalls to Avoid When Investing in Defense Stocks

Never treat all defense stocks the same.

The first step in stock selection is to look at the defense revenue share. Companies with low defense revenue may see civilian market declines offset defense gains, leading to stock declines—Raytheon and Boeing are lessons here.

Second, consider civilian market prospects. Even if military orders surge, if civilian segments are replaced by technology or face market pressure, overall performance may suffer.

Third, assess depth of the moat. Companies with proprietary technology, long-term contracts, and difficult-to-replace products are the real long-term holdings in defense stocks.

Summary

Defense stocks have stable demand and growth potential, but not all are worth buying.

When choosing stocks, consider:

• How high is the defense business share?
• What is the outlook for civilian segments?
• How deep is the technological moat?
• Do they regularly reward shareholders?

Pure defense leaders (Lockheed, Northrop) are suitable for long-term holding with relatively manageable risks. Hybrid companies (General Dynamics) offer stable returns but limited growth. Problematic firms (Raytheon, Boeing) require patience for turnaround and are not suitable for chasing rallies.

Before investing, clarify what you are buying—stable government orders or risky civilian business—since the difference is significant.