What are the Taiwan military industrial stocks? Analyzing the most resilient investment options of this era

The global landscape is shifting. The Ukraine-Russia conflict, turmoil in the Middle East, and rising geopolitical tensions in the Taiwan Strait have made the surge in military technology demand a certainty. Rather than viewing this as a geopolitical risk, it’s better to see it as a lasting market opportunity. So, which Taiwanese defense stocks are worth paying attention to? What investment value do leading U.S. defense stocks have? This article will break it down for you.

Why should you pay attention to defense stocks now?

In the past, wars relied on human wave tactics, but today it’s entirely different. Drones, precision missiles, information warfare—technology is reshaping the nature of warfare. This means that even without large-scale conflicts, countries worldwide are continuously increasing their military budgets.

Major countries like China, the U.S., and Taiwan are increasing defense spending year after year. It’s not because they want to go to war, but because they are preparing for the possibility that they might have to. This “better safe than sorry” mentality is the perpetual growth engine of the defense industry.

What are defense stocks? What should you understand before investing

The definition of defense stocks is actually broader than you think. It not only includes companies that produce weapon systems but also those supplying water bottles, uniforms, spare parts, and other military-related products—any company with clients like the Ministry of National Defense or doing business with defense agencies can be considered part of the defense concept stocks.

But here’s a key point: not all stocks labeled as defense stocks are worth investing in. Many companies only have a small portion of their revenue from military business—perhaps less than 10%. If defense income is negligible, positive market sentiment may not be enough to move the stock price significantly.

Before investing in defense stocks, ask yourself: what proportion of this company’s business is defense-related? What is the outlook for its civilian market? Does it meet future demand?

For example, if an airline’s civilian orders face difficulties—despite stable military orders—the stock price could still decline. When selecting stocks, you must look beyond just the defense segment and consider the overall business ecosystem.

How to choose leading U.S. defense stocks?

Lockheed Martin (LMT)—A stable growth leader

Lockheed Martin is a global defense giant involved in missiles, aerospace, and information warfare. Over the long term, its stock price shows steady upward growth, with fluctuations mainly due to broader market corrections rather than fundamental issues.

The company’s advantage lies in its core customer—the U.S. Department of Defense—which provides relatively stable orders. Long-term investors can regard it as the “cornerstone” of the defense sector.

Northrop Grumman (NOC)—A technology leader worth holding long-term

Northrop Grumman is the fourth-largest defense manufacturer globally and the largest radar producer. Its greatest strength is its deep technological moat—focused on space, missiles, and communications technology, which have high entry barriers.

More importantly, Northrop Grumman has achieved 18 consecutive years of dividend growth and announced a $500 million share buyback plan this year. As global security tensions persist, countries will continue to increase defense investments, ensuring this company’s profitability. From a long-term dividend stability perspective, Northrop Grumman is a “cash flow machine” among defense stocks.

General Dynamics (GD)—A resilient defender against economic cycles

General Dynamics is one of the five major U.S. defense contractors, supplying weapons across land, sea, and air forces. Its unique feature is the significant proportion of civilian business—products like Gulfstream business jets help it remain profitable despite economic fluctuations.

Financial data speaks volumes: during the 2008 financial crisis and the COVID-19 pandemic in 2020, this company’s profits did not decline significantly. Its dividends have grown for 32 consecutive years, a feat achieved by only about 30 U.S. companies.

Even if revenue growth is slow, its strong cost control and shareholder return focus make it attractive for dividend investors.

Raytheon (RTX) and Boeing (BA)—Caution needed

Both companies have civilian and military businesses, but in recent years, they’ve faced heavy burdens from the civilian side.

Raytheon got entangled in issues with defective parts supplied to Airbus A320neo—these parts could fracture under high pressure, leading to lawsuits and customer loss risks.

Boeing also struggles with civilian problems: the 737 MAX crashes led to worldwide grounding, and the pandemic worsened the situation, making the civilian market outlook bleak. Although military demand remains stable, the decline in civilian business could completely offset defense benefits.

Both companies’ defense orders are increasing, but their overall stock prices are falling—this shows that investing in defense stocks requires more than just looking at the defense segment.

Caterpillar (CAT)—A borderless defense stock

Caterpillar is categorized as a defense concept stock, but its military revenue accounts for less than 30%, mainly as an industrial equipment manufacturer. Post-war reconstruction needs infrastructure, and its excavators, bulldozers, and similar equipment benefit from this—but this is not direct military demand, rather post-conflict rebuilding.

Many similar companies exist: FedEx has handled logistics in war zones; some sell military steel cups. As long as the client is a government or defense department, they can be labeled as defense stocks.

When investing in such companies, clearly distinguish the true proportion of defense business to avoid being misled by concepts.

What about Taiwanese defense stocks? Emerging local opportunities

The Taiwan Strait geopolitical situation is a global focus, with both Taiwan and China increasing their military budgets. This creates unique opportunities for local Taiwanese defense companies.

Thunder Tiger (8033.TW)—From toy manufacturer to defense newcomer

Thunder Tiger was once a major remote-controlled model aircraft maker, but with the surge in drone military demand, the company transformed into a defense enterprise. Its stock price soared significantly in 2022, and with Taiwan’s defense budget growth, there’s still room for further gains.

Hansung (2634.TW)—A stable company with diversified income

Hansung’s business model is similar to Boeing’s but more balanced. Its civilian side mainly involves aircraft maintenance and parts sales, while its military focus is on trainer aircraft. This diversification makes it less vulnerable to issues with a single product.

Unlike Raytheon and Boeing, which suffered large losses due to single-model problems, Hansung’s maintenance and repair business can generate steady revenue as long as the industry remains healthy. Its stock performance is relatively stable, making it worth long-term observation.

Is investing in defense stocks worthwhile? Three reasons

Many investors are still hesitant—are defense stocks really good investments? The answer is yes, for three reasons:

1. An ultra-long growth runway—demand is endless

Human civilization has advanced, many habits have been eliminated, but conflicts have never truly stopped. The demand for armies is eternal, and this industry’s runway is long enough to support decades of growth.

2. Deep moats—technology and trust build barriers

Defense industry technology often leads civilian tech by years or even a decade. Cutting-edge tech is first tested in labs and deployed in the field before being released to the public.

More critically, because it involves national security, industry entry barriers are extremely high. Trust takes decades to build; many technologies are patented or exclusively supplied by the state. Leading companies are thus hard to replace, creating a deep moat for defense stocks.

3. Geopolitical dividends drive growth—an inevitable trend

Globalization is retreating, regional politics are heating up. After Trump’s “Make America Great Again” initiative, the concept of a global village faded, and countries are re-evaluating defense spending. China is increasing military expenditure, Taiwan is raising its budget, and Europe is expanding its armed forces. This will be the norm for a long time.

A significant drop in defense stocks usually only occurs due to disarmament. But in today’s context, that’s highly unlikely. Therefore, growth prospects are secure.

Common pitfalls when investing in defense stocks

Defense stocks are good investments, but only if you choose the right companies. Many investors make the mistake of confusing “bright prospects for the defense industry” with “all defense companies are worth buying.”

Don’t make this mistake: just because military demand increases doesn’t mean you should blindly buy. The examples of Raytheon and Boeing show that even with stable or growing defense orders, difficulties in civilian markets can wipe out profits and cause stock prices to plummet.

Before investing, ask yourself: what proportion of this company’s revenue is from defense? Is its civilian business healthy? Are there ongoing lawsuits or reputation risks? Only if the answers are “yes” should you consider investing.

Conclusion

The market demand for defense stocks is steadily growing and has become a certainty. But when choosing stocks, you must deeply understand the company’s structure—defense proportion, civilian market status, overall competitiveness. Don’t just focus on the defense aspect and ignore the company’s health.

The good news is that defense stocks generally don’t face the risk of company collapse. Their main clients are governments, which maintain close relationships with companies and won’t easily let leading firms fail. This gives defense stocks a deeper moat than ordinary companies.

Among Taiwanese defense stocks, Thunder Tiger and Hansung each have their strengths; among U.S. defense giants, Northrop Grumman and General Dynamics are the most worth holding long-term. The final advice: consider a comprehensive analysis of the company’s finances, industry trends, geopolitical factors, and civilian market changes to make wise investment decisions.