Military Industry Concept Stocks Investment Guide: Opportunities for Layout Amid Global Geopolitical Conflicts

Why Are Defense Industry Concept Stocks Worth Paying Attention To?

In recent years, regional conflicts have become more frequent, from the Russia-Ukraine war to escalating tensions in the Middle East. Countries are increasingly emphasizing national defense and security. Unlike the war models of the past that relied heavily on manpower, modern military conflicts focus more on technology—drones, precision missiles, information warfare becoming the main battlegrounds. This shift directly drives annual increases in global military spending.

Many nations have found that investing in advanced technology can achieve greater military deterrence with fewer personnel casualties. Therefore, regardless of whether wars actually break out, countries tend to increase defense expenditures, creating continuous growth opportunities for companies related to the military-industrial sector.

What Are Defense Industry Concept Stocks?

Defense industry concept stocks refer to publicly listed companies primarily providing products or services for military use. These products range widely—from large weapon systems, fighter jets, and missiles to military uniforms, communication equipment, and even companies with direct or indirect dealings with defense departments.

In a broad sense, any company whose customer base includes government defense agencies, or whose upstream suppliers have collaborations with the government, can be considered a defense concept stock. These companies typically enjoy long-term, stable government orders, and the entry barriers are extremely high.

What Should Investors Know Before Investing in Defense Concept Stocks?

First, evaluate the company’s military revenue proportion. If military orders account for only a small part of total revenue and most business comes from civilian markets, the stock price may not fully benefit from the growth of the defense industry.

Second, focus on whether the company aligns with future military needs. Since many countries’ armed forces may face difficulties expanding personnel, future growth will likely come from increased technological investments. Therefore, companies in advanced fields such as drones, missile systems, and satellite communications have greater growth potential. Lastly, do not overlook the market conditions of the civilian business segment, as many defense companies also operate in commercial sectors. A decline in civilian markets could offset the growth from military orders.

Investment Opportunities in Taiwan Defense Stocks

Taiwan is located at the center of global geopolitical focus, and developments in the Taiwan Strait directly impact the defense budgets of both sides. Over the past two years, both Taiwan and China have increased defense spending, attracting attention to local defense concept stocks.

Thunder Tiger Technology: From Toy Manufacturer to Defense Supplier

Thunder Tiger Technology(8033.TW) originally manufactured remote-controlled model aircraft. With the rise of the drone industry, it has gradually transformed into a defense supplier. In 2022, the stock surged significantly, reflecting market expectations for future military orders. As countries strengthen drone procurement, Thunder Tiger’s growth potential remains worth monitoring.

Hanxiang: Diversified Defense and Civil Business

Hanxiang(2634.TW) operates similarly to international defense giants like Boeing, covering both defense and civilian sectors. Its military division mainly produces trainer aircraft, while its civilian division provides aircraft maintenance and parts sales. Compared to competitors focusing on a single product line, Hanxiang’s diversification reduces risk. With expanding drone markets and the reopening of the aviation industry, the company’s orders continue to grow, and its stock performance remains relatively stable.

Investment Evaluation of U.S. Defense Industry Leaders

Lockheed Martin: A Benchmark for Steady Growth

Lockheed Martin(LMT) is one of the world’s largest defense contractors, producing missile systems, fighter jets, satellites, and other advanced military equipment. Since going public, its stock has shown a steady upward trend, with dips mainly caused by broader market corrections rather than deteriorating fundamentals. As a pure defense concept stock, its long-term investment value is recognized.

Northrop Grumman: Deep-Rooted with Leading Technology

Northrop Grumman(NOC) is the fourth-largest defense manufacturer globally and the largest radar producer. Nearly 100% of its revenue comes from defense, making it a pure defense concept stock. The company has stable profits, has increased cash dividends for 18 consecutive years, and is accelerating a $500 million share buyback plan this year.

Currently, Northrop Grumman’s cooperation with the U.S. Department of Defense focuses on “strategic deterrence,” including space, missile, and communication technologies. As global geopolitical tensions persist, even without actual warfare, countries will increase defense investments out of crisis awareness. Northrop Grumman’s strong technological moat and leadership position make it a preferred long-term investment target.

General Dynamics: Stable Cash Flow Defense Giant

General Dynamics(GD) is one of the top five U.S. arms suppliers, serving all three military branches. It operates both defense and civilian businesses, with its civilian division manufacturing Gulfstream jets for high-net-worth clients worldwide.

Thanks to its civilian customer base’s resilience to economic cycles, the company’s overall revenue remains stable during downturns like the 2008 financial crisis and the COVID-19 pandemic. This stability is also why it has increased dividends for 32 consecutive years—one of only 30 U.S. companies to achieve this. Although its revenue growth is slower than pure defense companies, it improves profitability through cost control and actively conducts share repurchases to reward shareholders. These characteristics make it a stable anchor in an investment portfolio.

Raytheon: A Turning Point to Watch

Raytheon(RTX) operates in both commercial aviation and defense. While its defense orders have maintained steady growth, its stock performance in 2023 has been weak, mainly due to setbacks in its civilian business.

Raytheon supplies engines for Airbus A320neo aircraft, but quality issues have arisen, risking engine part fractures under high stress. As global air travel recovers, about 350 A320neos require re-inspection, with each repair taking up to 300 days. This not only impacts Raytheon’s revenue but also exposes it to Airbus lawsuits and potential customer loss. Until these issues in the civilian sector are fully resolved, investors should continue to monitor developments and avoid blindly chasing gains.

Boeing: Civilian Sector Challenges Outweigh Defense Benefits

Boeing(BA) is one of the world’s two major commercial aircraft manufacturers and also a top five U.S. defense contractor, producing well-known military equipment such as the B-52 bomber and Apache helicopters.

However, its stock price has plummeted mainly due to setbacks in its civilian business. The 737 MAX accidents in 2018 and 2019 led to worldwide grounding, and the COVID-19 pandemic worsened the situation. Additionally, the rise of Chinese commercial aircraft has broken Boeing’s long-standing monopoly. Amid U.S.-China trade tensions, Chinese airlines are shifting toward domestic aircraft, with the Chinese government increasing support for local manufacturers. Chinese commercial aircraft are expected to gain a share in the global market.

From an investment perspective, Boeing’s defense segment is likely to remain stable, but the outlook for its civilian business is uncertain. This makes Boeing more suitable for “bottom-fishing” rather than “chasing rallies.”

Caterpillar: Marginal Defense Concept Stock

Caterpillar(CAT) is often listed as a defense concept stock, but in reality, its military revenue accounts for less than 30%, with its main business still in industrial equipment manufacturing. Its performance mainly depends on global government infrastructure spending and raw material demand.

Many similar “defense concept stocks” exist. For example, FedEx once contracted military mail delivery, earning it a defense label; companies selling military steel cups and boots are also categorized as defense stocks. These classifications depend largely on customer backgrounds—if the main customer is the defense department, even producing everyday items can be considered a defense concept stock. Conversely, Boeing, although manufacturing fighter jets, has a larger civilian business, and its performance more reflects the commercial aircraft market than the defense sector.

The Long-Term Investment Logic of Defense Concept Stocks

Based on current global developments, defense concept stocks have medium- to long-term investment potential, mainly due to the following three reasons:

1. An Industry That Never Stops. Human conflicts have never ceased throughout history, and national defense needs are endless. This means the operational runway for the defense industry is long-term, with no risk of market extinction.

2. Deep Moats. Defense industry technology levels far surpass civilian sectors because the most advanced technologies are first applied in laboratories and military units, often lagging behind civilian markets by years. Additionally, national security involves extremely high entry barriers; trust between companies and governments takes decades to build, with many technologies and patents being exclusive or highly confidential. These factors ensure leading companies are difficult to replace, and the competitive barriers of defense stocks are much higher than those of civilian tech firms.

3. Geopolitical Bonuses Driving Growth. As the world enters an era of regional politics, the concept of a global village is fading. Especially after the U.S. announced “reshoring” policies, countries are reassessing their security independence and increasing defense spending. For a foreseeable long period, countries will maintain high military expenditure, providing continuous growth momentum for defense concept stocks.

The only major risk causing a sharp decline in defense concept stocks is “arms reduction,” but given the current global security situation, this risk is very low.

Key Tips for Investment Decisions

Although the long-term outlook for defense concept stocks is optimistic, investors must carefully examine the company’s military revenue proportion. If growth in military orders is offset by declines in civilian business—as seen with Raytheon and Boeing—then even increased defense demand may lead to significant drops in stock prices and profits, resulting in losses.

The advantage of defense concept stocks lies in their low risk of bankruptcy, because their main clients are governments, and national security considerations foster deep trust. This relationship often prevents these companies from being allowed to fail, giving them a deep moat and making them suitable for long-term investment.

Summary

When choosing to invest in defense concept stocks, investors should comprehensively evaluate the company’s financial health, military business proportion, industry development trends, global geopolitical dynamics, and changes in the civilian market. Blindly investing solely because of increased military orders, without considering civilian sector risks, can lead to deviations between expectations and reality. Only by thoroughly understanding the company’s complete business structure can one make wise investment decisions in defense concept stocks.