Military Industry Stocks Investment Guide: The Stock Selection Logic Behind War Benefits

Geopolitical conflicts continue to escalate, from the Ukraine-Russia standoff to Middle Eastern tensions, making technological warfare the new normal. Drones, precision missiles, information warfare—what investment opportunities lie behind these high-tech applications? The answer is in military stocks. As global military spending increases year after year, who can benefit from this wave of dividends? This article helps you understand the investment logic and stock selection methods for military stocks.

Why should you pay attention to military stocks now?

Long runway: Throughout human history, conflicts have never ceased. The demand for military forces is eternal; this industry will not disappear due to economic fluctuations.

Deep moat: Military technology leads civilian tech by generations, with extremely high entry barriers. Building trust takes a long time; once a company becomes a supplier, it’s hard to be replaced. Governments and enterprises have close relationships, and the risk of company bankruptcy is very low.

Growth prospects: The world is entering an era of regional politics, with countries increasing their military budgets. The probability of disarmament is very low; military demand will only increase, not decrease.

In other words, military stocks simultaneously meet Buffett’s three criteria for good investments: “a long enough runway, a deep enough moat, and a snowball that’s wet enough”—the three key elements of quality investment targets.

How to identify genuine military stocks?

Not all stocks labeled as military stocks are worth buying.

Broadly speaking, military stocks include all companies that do business with the Department of Defense—from fighter jets to military uniforms, from missiles to water bottles. But when investing, you must look at the “military proportion.”

Pure military vs. semi-military and civilian: there’s a world of difference:

• Pure military: Lockheed Martin (LMT), Raytheon (RTX)—over 80% of revenue from military clients, most directly benefiting from military dividends.
• Semi-military and civilian: Boeing, General Dynamics—less than 50% of revenue from military, with civilian business fluctuations potentially dragging down overall performance.

The second key to stock selection is future demand judgment. Contemporary warfare focuses on the Air Force and Navy; Army orders may not increase. As the technological content rises, traditional weapon manufacturing might shrink. Choosing the wrong niche means even if military spending increases, you won’t benefit from the dividends.

How to choose leading military stocks?

Lockheed Martin (LMT): The world’s largest defense contractor, responsible for F-35, F-16, Black Hawk helicopters. After drones gained prominence in the Ukraine-Russia war, related orders surged. The stock price has steadily risen long-term, with stable cash flow and high dividends, suitable for long-term holding.

Raytheon (RTX): The second-largest U.S. defense supplier, core business in shells and missiles. In 2023, the stock plunged mainly due to quality issues with its Pratt & Whitney engines—PW1100G-JM engines had powder metal defects causing Airbus A320neo groundings on a large scale. Over the next 3–4 years, about 350 aircraft will need inspections annually, with maintenance periods up to 300 days. This not only impacts revenue but also poses litigation risks. Currently not recommended for chasing prices; wait until technical issues are resolved and financial reports confirm stability.

Northrop Grumman (NOC): The fourth-largest global defense contractor and the largest radar manufacturer. Pure business, steady profits, with 18 consecutive years of dividend growth. Core focus on “strategic deterrence”—space, missiles, communications technology. Only the U.S. can produce stealth bombers worldwide, with strong technological monopoly. If the Russia-Ukraine deadlock continues or U.S.-China competition intensifies, NOC will directly benefit. Deep moat, a top long-term investment choice.

General Dynamics (GD): One of the top five U.S. defense companies, covering land, sea, and air. Semi-military and civilian structure (25% civilian, 23% Navy, 22% national security info, 18% weapons, 12% mission services). Civilian aircraft are not affected by economic cycles, so overall profitability remains stable. Dividends have grown for 32 consecutive years; only 30 U.S. companies have achieved this. Growth potential is limited but with high certainty, making it suitable for conservative investors.

Boeing (BA): Dual identity—global commercial aircraft giant and one of the five largest U.S. defense contractors. Military business (B-52 bombers, Apache helicopters) has stable prospects, but civilian business is a stock price killer. The 737 MAX grounding crisis, COVID-19 pandemic, and rise of Chinese Commercial Aircraft Corporation (COMAC) have all impacted the market. Even with increased military orders, the decline in civilian aircraft sales cannot be offset. Suitable for bottom-fishing rather than chasing rallies.

Caterpillar (CAT): Strictly speaking, military proportion is less than 30%, mainly an industrial equipment supplier. Naval engines are a sideline; main business is excavators and mining trucks. Benefiting from China’s infrastructure investments, revenue has actually grown. Post-war reconstruction will also boost demand. Focus on global government spending and raw material cycles, not military cycles.

Risks of investing in military stocks

Pure military stocks ≠ guaranteed profits. The lessons from Raytheon and Boeing are vivid examples—military order increases can lead to stock price crashes because of problems in the civilian sector.

Before investing, ask three questions:

1. How high is the military revenue proportion of this company?
2. Is the civilian business facing impact (product issues, increased competition, demand decline)?
3. Is the company involved in lawsuits or regulatory risks?

Conclusion: Choosing pure military giants is better than selecting semi-military and civilian hybrids. The former benefits more directly from military dividends, while the latter can be dragged down by civilian business issues. In the long run, military stocks are indeed worth allocating, but only if you select the right targets.