Defense Stocks: Buy or Sell?
Global uncertainty is at an all-time high. As a result, many investors are buying defense stocks to ride out the volatility. International tensions are heating up on several fronts, and the government is throwing money at the defense budget. Military stocks are getting a lot of attention as a result of these long-term trends.
Interested in more high-tech military stocks? Check out our featured watchlist, the best drone stocks, for even more cutting-edge weapons systems.
Big guns and heavy metal, these companies build some of the meanest machines on the planet.
General Dynamics (GD)
M1A2 SEP v2 Abrams Main Battle Tank, Stryker IFV
General Dynamics produces the M1 Abrams battle tank and a variety of other land systems for the U.S. military. The company is also the primary producer of artillery shells for the U.S. military.
BAE Systems (OTC: BAESY)
Bradley AFV, M1907 Paladin, ARCHER Mobile Howitzer
A merger between U.K.-based British Aerospace and Marconi Systems created BAE Systems formed this company. Today, the company is one of the largest manufactures of light armored vehicles and artillery pieces for the U.S. and U.K. military. BAE also manufactures the British Army’s main battle tank, the Challenger 2.
Aerospace companies produce some of the most important weapons systems in the U.S. arsenal. The U.S. is spending heavily to develop supersonic aircraft and full stealth technology, and these defense stocks are leading the charge into the battlefield of tomorrow.
Lockheed-Martin (NYSE: LMT)
F-22 Raptor, F-35 Lightning II, Sikorsky Helicopter, SR72 Blackbird
Lockheed produces some of the most advanced aircraft the world has ever seen. The F-35 is an all-weather, stealth, supersonic fighter that’s changing the rules of combat aviation. The company also makes Sikorsky helicopters and a variety of other advanced systems.
Boeing Corp. (NYSE: BA)
AH-64 Apache, FA-18 Super Hornet, F-15, V-22 Osprey
Boeing shareholders are still reeling over the 737 MAX fiasco, but this company is a big player in the A&D space for years to come. Some of their most notable products include the Apache helicopter and FA-18 Super Hornet. Boeing and the U.S. government have a very close relationship, which should earn the firm more favorable treatment from the top echelons of government. Boeing deals closely with the civilian sector as well.
Many of the companies producing arms for the U.S. military are privately owned. Glock, Fabrique-Nationale, Remington and many other military small arms manufacturers are closely held private companies, so there aren’t a lot of military stocks that deal solely in firearms.
American Outdoor Brands (NYSE: AOBC)
Firearms (Smith & Wesson, M7P, Thompson), Law Enforcement Accessories
Smith and Wesson released their first police service revolver in 1899, and cops still carry S&W revolvers 120 years later. The U.S. military doesn’t buy any of its guns from AOBC, but the company sells weapons, handcuffs, ammunition, and other accessories to law enforcement at the federal, state, and local level.
Helicopters changed the way wars are fought when they flew U.S. troops over the jungles of Vietnam. These days, they’re among the most important weapons in the U.S. military arsenal.
Textron Systems (NYSE: TXT)
AH-1 Cobra, UH-1 Iroquois (“Huey”), H-13 Sioux
Textron purchased Bell in 1960 and proceeded to revolutionize the helicopter industry. The AH-1 Cobra is still flying, virtually unchanged, and it’s been in the air since Vietnam. Textron is way bigger than helicopters though. The company manufactures an arsenal of high-tech weapons systems and military equipment, including missiles, UAVs, light-armored vehicles, and much more.
General Electric (NYSE: GE)
GE doesn’t make helicopters, but the firm supplies engines for many U.S. helicopters, including the UH-60 Blackhawk. General Electric is one of the world’s leading producers of aviation jet engines for commercial, civilian, and military applications. It also supplies avionics and other military systems.
High-Tech Military Stocks
Supersonic cruise missiles and drone-killing lasers may sound like science fiction, but these cutting-edge military stocks are making technologies like these a reality.
Northrop Grumman (NYSE: NOC)
Smart Bombs/Munitions, Information Systems, Satellites, Missiles
These days, armies also need smart munitions and high-tech communications to get the job done. Northrop Grumman provides a variety of high-tech support equipment for the military. The firm breaks its product portfolio into four core sectors: aerospace systems, “innovation systems” (space/high-tech weapons), mission systems (battlefield command, etc.), and technology services (IT/back-end).
Raytheon (NYSE: RTN)
Energy weapons, Hyper-Sonic Aircraft, Missiles, Cyber/Electronic Warfare
Possibly the most advanced weapons system manufacturer in the world, Raytheon is one of the leading companies in the military-industrial complex. Raytheon makes a variety of advanced weapon systems, including the Javelin portable antitank weapon and hypersonic weapons that travel at five times the speed of sound.
The Defense Industry Landscape
Defense stocks are listed under the aerospace and defense sector. However, many of these companies make products for the civilian sector. Therefore, all military stocks fall under the A/D sector. Countless small companies are pitching innovative technologies to military clients. Just one Pentagon contract can create a whole new world for these startups and create a huge movement in stock prices.
Politics have a huge influence on this industry. As a result, an election or a new majority in congress can severely impact short-term share prices and even upset the long-term outlook for the industry. Military spending cuts also hurt the market for defense stocks.
Many companies in the aerospace and defense sector don’t get all of their revenues from defense contracts. They are industrial conglomerates that produce a variety of goods. In fact, out of the top 20 defense contractors ranked by revenue, only two companies earn 100% of their revenues from their defense business.
Small-Cap Military Stocks
There are tons of small startups that are chasing U.S. military contracts. These defense stocks behave much differently than the large-cap behemoths you see here. Many of these small startups aren’t listed in the aerospace and defense sector but, regardless, they rely on the military for most, if not all, of their revenues.
Defense Stocks: Closing Thoughts
Military stocks make great defensive positions in any portfolio. These companies have stable revenues, and the U.S. military budget is expanding to create even more opportunity for these companies. If you’re looking for some stable assets to shore up your portfolio against the market uncertainty, you need to be looking at defense stocks. The sector is outperforming the S&P 500 this year by over 5% so, if you’re not in, you’re missing out.