Military Merits Concept Stocks Investment Guide: Long-term Opportunities in the Defense Industry from a Geopolitical Perspective

Why Should You Focus on Military-Related Concept Stocks Now?

Global situations are undergoing subtle changes. As we observe the prolonged conflict between Ukraine and Russia, escalating tensions in the Middle East, and consecutive increases in national defense budgets worldwide, a clear trend emerges: Traditional manpower-intensive military confrontations are being replaced by technology-driven precision warfare. Unmanned drones, missile systems, information warfare, space defense—investment demands in these fields are growing at unprecedented speeds.

In other words, the defense industry is no longer just a peripheral topic from the Cold War era but has become a seriously undervalued investment sector in the global economy. For investors seeking long-term stable returns, military-related concept stocks are offering a rare window of opportunity.

Understanding the Essence of Military-Related Concept Stocks

First, it’s important to clarify that “military-related concept stocks” do not solely refer to arms manufacturers. Broadly speaking, any company that directly collaborates with the Ministry of Defense or supplies products and services through the supply chain to the military can be included in this category. This covers everything from large weapon systems and aircraft equipment to seemingly mundane logistics supplies—so long as the client is the military or government defense departments, the company has military-related attributes.

The demand characteristics of the defense industry are fundamentally different from those of general civilian industries. When a country perceives its security to be threatened, defense budgets tend not to be affected by economic cycles; instead, they often grow counter-cyclically. This explains why, even during the 2008 financial crisis and the COVID-19 pandemic in 2020, defense stocks maintained relatively steady performance.

Three Key Factors to Know Before Investing in Military-Related Concept Stocks

The Proportion of Military Revenue is Crucial

A common mistake among investors is treating all defense-related stocks equally. In reality, the proportion of a company’s military orders directly determines whether its stock can truly benefit from defense demand growth.

Take Boeing as an example. Although its defense division’s orders are steadily increasing, its high exposure to the civil aviation sector—coupled with the 737 MAX crisis and subsequent competition in the civilian market—led to a significant decline in its overall stock price. Conversely, pure military contractors like Northrop Grumman, with military-related revenue exceeding 95%, can benefit more directly from increases in defense budgets.

Therefore, the first step in screening for military-related concept stocks is to confirm whether the company’s military revenue proportion is sufficiently high (recommended at least 50% or more).

Technological Leadership Forms a Moat

The biggest difference between the defense industry and consumer technology lies in entry barriers. Defense products involve national security, and trust with government suppliers takes decades to establish. Once a manufacturer becomes a primary supplier for the defense department, it is almost impossible to replace.

More importantly, military companies often possess the most advanced technologies globally. Many innovations we see in civilian fields originate from breakthroughs in military applications. This means that leading defense companies automatically have a technological moat that others find difficult to surpass.

Regional Political Trends Affect Order Volumes

The final key factor is the global geopolitical landscape. Currently, the world is shifting from “economic integration” back toward “regionalization.” Concerns over potential military conflicts are rising, directly increasing defense spending. Taiwan, the South China Sea, Eastern Europe, the Middle East—any developments in these geopolitical hotspots are immediately reflected in the order books of defense companies.

In-Depth Analysis of U.S. Defense Industry Leaders

Lockheed Martin (LMT): The Absolute Leader in Missiles and Space

Lockheed Martin’s position in the defense industry is virtually unshakable. Its business covers strategic missile systems, fighter jets, space defense, and other cutting-edge fields, making it an indispensable part of the U.S. defense system.

Financially, Lockheed Martin’s stock price has maintained a steady upward trajectory over the long term. Even during market corrections, its decline has been significantly smaller than the overall market. This reflects market confidence in the company’s continued growth—especially as global defense spending increases and space technology races heat up, Lockheed Martin’s order pipeline is expected to remain robust over the next 5-10 years.

Raytheon (RTX): A Complex Case Facing Transformation

Raytheon’s situation is more complicated. Its military orders are indeed steadily growing, but its large civil aviation division faces unprecedented challenges.

Specifically, the engines supplied to Airbus A320neo aircraft have experienced quality issues, prone to faults under high-pressure conditions. Currently, the global aviation industry is recovering strongly, with many airlines eager to purchase new aircraft. However, these issues mean that over the next 3-4 years, an average of 350 A320neo aircraft will need re-inspection annually, with each maintenance cycle potentially lasting up to 300 days.

This not only entails significant maintenance costs and legal liabilities for Raytheon but could also lead to losing long-term customers. Until these problems are thoroughly resolved, the investment value of Raytheon’s stock remains uncertain. Investors should continue to monitor this stock until negative factors are gradually addressed.

Northrop Grumman (NOC): A Steady Benchmark for Pure Military Industry

If Lockheed Martin represents growth potential, Northrop Grumman stands for stable value. As the world’s fourth-largest defense company and the largest radar manufacturer, over 95% of its revenue comes from military-related business.

The company’s operations are fully aligned with U.S. defense strategic priorities, especially in space defense, missile systems, and communications technology. Northrop Grumman’s core strength is not in a single product but in its system-level solutions.

From a shareholder return perspective, the company has increased dividends for 18 consecutive years and launched a $500 million share buyback plan this year. This continuous buyback and dividend increase policy reflects management’s confidence in long-term prospects. Given the persistent global demand for defense upgrades, Northrop Grumman has excellent long-term investment value.

General Dynamics (GD): The Balance Between Defense and Civilian Markets

General Dynamics differs from the above companies in that its civilian business accounts for a relatively higher proportion. The company manufactures fighter jets, naval vessels, and other defense products, while also producing private jets (like Gulfstream).

This diversified business structure has its advantages: civilian customers (such as ultra-high-net-worth individuals) are less affected by economic cycles, resulting in lower overall revenue volatility. During the 2008 financial crisis and the COVID-19 pandemic, General Dynamics’ profits did not decline significantly.

Moreover, the company has increased dividends for 32 consecutive years, a feat achieved by only about 30 U.S. listed companies. While its growth rate is not as high as pure defense companies, its moat remains deep, and its dividend yield and stock stability are attractive to investors seeking reliable income.

Boeing (BA): An Old Giant in Trouble

Boeing once monopolized the global commercial aircraft market, and its defense division is also one of the top five U.S. defense contractors. However, in recent years, the company has faced pressures in both civilian and defense sectors.

On the civilian side, the 737 MAX series aircraft experienced two fatal crashes in 2018-2019, leading to worldwide grounding, followed by the impact of the pandemic. A more severe threat comes from the rise of Chinese commercial aircraft—amid escalating U.S.-China tensions, the Chinese government is vigorously supporting domestic aircraft manufacturers, breaking Boeing and Airbus’s long-standing monopoly.

In defense, Boeing’s military orders are growing steadily but are insufficient to offset the decline in the civilian market. Therefore, Boeing’s stock is currently more suitable for buying on dips rather than chasing highs, and it’s better to wait until clear signs of a bottom in the civilian sector before considering entry.

Caterpillar (CAT): An Industrial Giant with Blurred Boundaries

Caterpillar is often included in the military-related concept stocks list, but in reality, its military revenue accounts for less than 30%, with most income coming from construction machinery and mining equipment.

The reason it’s labeled as military-related is mainly because its products are widely used in post-war reconstruction and infrastructure repair. Additionally, the company has handled government logistics and transportation services. Strictly speaking, Caterpillar should be viewed more as a “cyclical industrial stock benefiting from geopolitical conflicts” rather than a pure military-related concept stock.

Its stock performance mainly depends on global infrastructure investment cycles and commodity prices, not defense budgets. When investing in Caterpillar, one needs to shift perspective and see it as a macroeconomic indicator rather than a pure defense enterprise.

New Opportunities in Taiwan’s Defense Industry

Thunder Tiger Technology (8033.TW): From Toys to Drones—A Stunning Transformation

Thunder Tiger’s investment case is highly inspiring. Originally a manufacturer of remote-controlled model aircraft toys, it has gradually transformed into a defense technology supplier amid the explosive growth of the drone industry and rising Taiwan defense needs. The sharp increase in stock price in 2022 was market recognition of its transformation prospects.

As global drones become increasingly important in military applications (as demonstrated by the Ukraine war), Taiwan’s technological breakthroughs and industrialization in this field are worth关注. Future defense budget growth will likely tilt to Taiwan’s defense industry to some extent.

Hanxiang (2634.TW): Taiwan’s Model of Defense and Civilian Balance

Hanxiang’s business structure is similar to that of General Dynamics. The company manufactures military trainer aircraft and also engages in civilian aviation maintenance and parts sales.

This diversified strategy is particularly wise given Taiwan’s unique political and economic environment. On one hand, the company benefits directly from increases in defense budgets; on the other hand, its civilian aviation maintenance business is less affected by policy risks, providing revenue stability. Unlike Boeing and Raytheon, which have encountered difficulties due to product issues, Hanxiang’s diversified income structure offers more risk buffers.

In comparison, Hanxiang’s stock performance is more stable, making it attractive for long-term investors.

Investment Logic of Military-Related Concept Stocks: Why They Are Worth Allocating

A Long-Term, Certainty Investment Track

Human conflicts and competition have never ceased throughout history. Although we often hope for peace, military preparedness at the national level is unlikely to be significantly reduced in the foreseeable future. On the contrary, with new technologies and complex geopolitical situations, defense investment demand continues to rise.

This means that the track of military-related concept stocks is essentially “permanent,” with an investment horizon spanning ten years or even longer.

Deep Competitive Barriers

The biggest difference between defense companies and general tech firms lies in entry barriers. Governments do not easily replace suppliers because trust related to national security involves extremely high costs. Once a manufacturer becomes a primary contractor for the U.S. Department of Defense or Taiwan’s defense departments, its position is almost unshakable.

This “government customer stickiness” automatically creates a moat that other industries find difficult to reach. Coupled with technological leadership, leading defense companies are in an advantageous position in the market.

Geopolitical Bonuses and Policy Support

The world is experiencing a shift from “economic integration” to “regionalization.” Countries are increasingly emphasizing self-sufficiency in their industrial chains and providing unprecedented policy support to the defense industry. The U.S. promotes “reshoring manufacturing,” Taiwan increases defense budgets, and Europe enhances defense investments—these are structural, long-term policy trends.

For investors, riding this wave of geopolitical bonuses is akin to betting on dual engines of policy support and demand growth.

How to Precisely Select Military-Related Concept Stocks

Faced with a plethora of defense-related stocks, investors need to establish a clear screening standard:

Step 1: Confirm the Military Industry Revenue Share
Examine the military revenue proportion of candidate companies. Those below 50% should be approached cautiously, as civilian sector risks may offset military gains.

Step 2: Assess Technological Leadership
Check whether the company possesses irreplaceable technologies or unique positions in its field. This determines the depth of its long-term moat.

Step 3: Analyze Civilian Business Risks
If the company is involved in civilian markets, evaluate the market outlook, competitive landscape, and potential risks of that segment.

Step 4: Monitor Geopolitical Trends
Pay attention to political developments, defense budget trends, and procurement announcements in relevant regions, as these directly impact defense order growth.

Summary

Military-related concept stocks represent a long-term undervalued investment opportunity. Compared to more popular industries like consumer tech and biotech, defense has more stable demand, deeper moats, and clearer long-term prospects.

However, as with any investment decision, success depends on precise stock selection rather than blind industry bets. Investors must thoroughly understand each target company’s military revenue share, business structure, competitive position, and potential risks before investing. Only then can they identify those truly worth long-term allocation in a market full of uncertainties.

As global geopolitical complexity continues to grow and defense investments increase, savvy investors should start seriously considering allocating a portion of their portfolio to defense industry stocks. This is not a gamble on war but a recognition of a structural, long-term, policy-supported investment theme.