War Concept Stocks Investment Guide: Seizing Long-Term Growth Opportunities in the Defense Industry

In recent years, the global geopolitical landscape has been turbulent, with regional conflicts occurring frequently. From Ukraine to the Middle East, escalating warfare has driven a rapid increase in global military spending. Compared to traditional warfare models relying on manpower, today’s military strength is increasingly dependent on technology—drones, precision missiles, information warfare, and space technology have become the defining factors of the new era. This shift has generated enormous business opportunities, with many companies involved in the defense sector experiencing substantial growth prospects. As major countries like the US, China, and Europe continue to increase their military budgets, war-related concept stocks are gradually becoming an important segment in long-term investment portfolios.

What are defense stocks? How do they drive investment returns?

The definition of defense stocks may seem simple but is actually broad. Any company producing civilian products but selling to the defense sector, or primarily engaged in providing military equipment, can be classified as related to defense concept stocks. The product range of such companies includes large weapon systems, fighter jets, and everyday military supplies.

The outbreak of the Ukraine conflict has prompted global defense departments to reassess the necessity of military modernization. Countries are realizing that technological advantages often outweigh sheer troop numbers. As a result, global military budgets are rising, especially with significant investments in emerging fields like drones, missile defense, and cyber defense.

In the context of declining birthrates, replacing manpower with technology has become a common choice for militaries worldwide. This trend directs more defense budgets toward R&D and procurement rather than personnel expansion. This long-term trend is highly favorable for the defense industry and naturally attracts the attention of savvy investors.

Key points for investing in war-related defense concept stocks

When allocating funds to defense stocks, investors should not only consider industry prospects but also deeply analyze the military business proportion of individual companies. If a company’s military revenue accounts for less than 30% of total revenue, its stock performance will be more influenced by the health of the civilian sector and less able to fully benefit from the growth in military spending.

Second, it is crucial to evaluate whether the company meets the future needs of warfare evolution. Currently, military power is shifting toward technology-intensive weapons replacing manpower-based tactics. Therefore, demand for air force and navy-related products will surpass that for the army. For example, traditional military uniforms may not see increased procurement with rising military budgets, but orders for reconnaissance drones, anti-ship missiles, and other high-tech weapons could experience explosive growth.

Furthermore, changes in geopolitical situations directly impact each country’s defense investment directions. The US “reshoring” policy, intensified US-China strategic competition, and ongoing tensions in the Middle East will support stable growth in military budgets over the coming years, providing sustained order momentum for defense companies.

Analysis of the top five US defense giants

Lockheed Martin(LMT): A benchmark for stability in the defense industry

Lockheed Martin(Lockheed Martin) is renowned for producing advanced fighter jets, missile systems, and defense electronics. Over 70% of its revenue comes from defense-related activities, making it a pure defense industry company.

Long-term stock performance shows a steady upward trajectory. Although there have been market corrections, these were mainly due to overall market fluctuations rather than deteriorating fundamentals. As a representative of defense stocks, Lockheed Martin benefits from the continuous growth of US defense budgets. Its deep technological barriers add to its long-term investment value.

Raytheon Technologies(RTX): Civilian challenges overshadow defense potential

Raytheon Technologies(Raytheon Technologies) is also a key player in the US defense industry, with stable growth in defense orders. However, recent stock performance has been disappointing, especially with a noticeable decline in 2023.

The root cause lies not in the defense sector but in the civilian aviation business. The company supplies powder metal parts for Airbus A320neo aircraft, which have design flaws that could cause engine failures under high-stress conditions. With strong global demand for air travel, airlines are competing to purchase new aircraft, leading to extensive inspections and maintenance for hundreds of planes in the coming years. The massive follow-up costs and related lawsuits have dealt a heavy blow to the company’s finances and reputation.

Until these issues are properly resolved, investors should remain cautious. Even if the military division has promising prospects, the drag from the civilian business can offset the gains from defense growth.

Northrop Grumman(NOC): The defense industry’s deepest moat

Northrop Grumman(Northrop Grumman) is one of the world’s largest radar manufacturers and one of the most pure defense companies. The company focuses on high-value-added fields such as space systems, missile defense, and communications technology, with clear technological leadership.

Its stock price has maintained a long-term upward trend, with dividends increasing for 18 consecutive years, demonstrating excellent profitability and management. This year, the company launched a $500 million share repurchase plan, reflecting management’s confidence in future performance and commitment to shareholder value.

With global nations strengthening their defense capabilities, Northrop Grumman’s leadership in strategic deterrence technology positions it to continue enjoying sustained demand growth. It is a top choice for long-term defense investment.

General Dynamics(GD): A stable model of military-civilian integration

General Dynamics(General Dynamics) is one of the top five US defense suppliers, covering land, sea, and air forces. The company also manufactures Gulfstream high-end business jets serving elite clients worldwide.

While its defense proportion is not as extreme as the previously mentioned companies, its overall performance remains remarkably stable. Even during the 2008 financial crisis and the COVID-19 pandemic, profitability was not significantly affected. This resilience is due to the robustness of its civilian segment—corporate and wealthy clients continue to maintain high-end aircraft maintenance and upgrades during economic downturns.

General Dynamics has increased dividends for 32 consecutive years, a rare achievement among US listed companies. Its revenue structure includes 25% from civilian, 23% from navy, 22% from national security information, 18% from weapon systems, and 12% from mission services. Although its growth rate is slower than pure defense companies, it enhances investment returns through meticulous cost control and share buybacks, making it worth attention.

Boeing(BA): Civilian challenges limit defense growth potential

Boeing(Boeing) is a major global commercial aircraft manufacturer and also one of the US’s five largest defense suppliers. Its product lineup includes classic commercial models like the(737 series, 747 series), as well as military platforms such as the(B-52 bomber, Apache helicopters).

However, Boeing’s stock price plummeted mainly due to dual crises in its civilian sector. First, the 737 MAX aircraft experienced two fatal crashes in 2018-2019, leading to worldwide bans and subsequent impacts from the pandemic, causing significant revenue and profit declines. Second, emerging competitors have broken Boeing’s market monopoly. Influenced by US-China trade disputes, the Chinese government has actively supported domestic commercial aircraft manufacturing, with COMAC( starting to capture global market share.

For investors, Boeing’s defense division is expected to maintain stable growth, but the outlook for its civilian sector is uncertain. Therefore, Boeing stocks are more suitable for buying at low prices rather than chasing high.

) Caterpillar###CAT(: Blurred boundaries of war concept stocks

Caterpillar)Caterpillar( is nominally classified as a defense stock but actually has less than 30% of its business in military-related activities, mainly engaged in heavy construction machinery. Its performance is primarily affected by global infrastructure investments and commodity prices.

To some extent, Caterpillar is related to war concepts—post-conflict reconstruction and disaster recovery require large amounts of engineering machinery. However, the stock performance of such companies more reflects global economic health rather than direct military demand, making their investment logic fundamentally different from pure defense stocks.

Investment opportunities in Taiwan defense stocks

The strategic importance of the Taiwan Strait geopolitical situation is increasingly prominent, with both sides significantly increasing defense budgets. This creates rare growth opportunities for local Taiwanese defense companies.

) Thunder Tiger###8033.TW(: From toy maker to drone leader

Thunder Tiger originally gained fame for manufacturing remote-controlled model aircraft, mainly targeting consumer markets. As drones become increasingly important in military applications, the company has successfully transitioned into a defense concept stock. Its stock price surged significantly in 2022. Looking ahead, with global demand for military drones continuing to rise, the company’s growth potential is worth期待。

) Hanxiang Aerospace###2634.TW(: Dual engines of defense and civilian markets

Hanxiang’s business model covers both defense and civil aviation. Its military segment mainly produces trainer aircraft, while its civilian segment involves aircraft maintenance, servicing, and parts sales.

Unlike companies like Raytheon and Boeing, which face difficulties due to single products or markets, Hanxiang’s diversified layout provides natural risk buffers. As long as the aviation industry remains healthy, maintenance and servicing will generate stable income. Coupled with steady growth in defense orders, Hanxiang’s stock performance remains relatively stable and warrants attention.

Why defense stocks are worth long-term investment? Three core reasons

Defense stocks differ fundamentally from traditional industries in their investment logic, embodying Warren Buffett’s investment philosophy—seeking companies with strong moats, long-term growth trajectories, and continuous cash flow. Defense stocks meet these three criteria perfectly.

) Endless industry runway

Conflict and competition have never fully disappeared throughout human civilization’s thousands of years. As long as nations exist, military needs will persist. This gives the defense industry unparalleled long-term certainty. War concept stocks are the most direct beneficiaries of this certainty.

Unmatched technological barriers

The entry barriers in the defense industry are extraordinarily high, with technological leadership often representing national strategic advantages. The world’s most advanced technologies are primarily applied in military fields first, then gradually transferred to civilian use after years of technological transformation. This technological gap creates a deep moat for defense companies.

Moreover, defense procurement involves national security, and trust-building can take years or even decades. Suppliers with established trust are difficult to replace. Many defense companies have exclusive supply agreements with governments, further strengthening their competitive edge.

Geopolitical dividends catalyze performance growth

Currently, the world is experiencing regional restructuring, reversing the previous trend of globalization. Trump’s “reshoring” policy marks a new wave of geopolitical competition. US-China rivalry, divisions between Europe and the US, and ongoing tensions in the Middle East all boost military expenditures.

Unlike during recession periods when defense demand shrinks, the current geopolitical deterioration trend is unlikely to reverse in the short term. Countries are increasing defense investments to counter potential threats. This provides a “wet snowball”—a persistent demand growth driver for defense stocks.

Core investment advice for defense stocks

Defense stocks as an investment tool indeed possess unique long-term value, but thorough due diligence before investing is crucial. The following points should not be overlooked:

First, confirm the proportion of military revenue in the target company. A high military business ratio means the company can more fully benefit from the growth in military spending. If military revenue accounts for less than 30%, the stock price will be mainly influenced by the civilian sector’s health.

Second, closely monitor whether the company’s civilian business faces systemic risks. For example, Raytheon’s aerospace component issues or Boeing’s 737 MAX incidents—these crises in the civilian sector can offset the benefits from defense growth.

Third, assess whether the company’s long-term competitive advantages remain solid. Deterioration in technological leadership, loss of market share, or supply chain risks are red flags to watch.

Compared to this, investors need not overly worry about the bankruptcy risk of defense companies. Governments are their main clients, and national security cannot be compromised. The stability and reliability of this customer base far surpass that of civilian companies, providing a solid foundation for long-term investment.

Final recommendations

War concept stocks represent a special investment domain, driven by the continuous increase in global military expenditure. Success depends on identifying companies with high defense business ratios, deep competitive advantages, and no drag from civilian sectors.

In the US stock market, Northrop Grumman and Lockheed Martin are the purest defense stocks and are worth prioritizing. General Dynamics, while more moderate in growth, offers stability and dividends, making it an ideal long-term hold. As for Raytheon and Boeing, caution is advised until their civilian difficulties are fully resolved.

In the Taiwan stock market, Thunder Tiger and Hanxiang Aerospace embody local defense industry growth opportunities, especially amid the backdrop of drone development and modernized defense.

Successful defense stock investments require comprehensive evaluation of financial health, industry trends, geopolitical dynamics, and competitive landscape. Only through rigorous analysis can investors achieve desirable returns in this domain characterized by long-term certainty.