As an investor, how do you think the ongoing war in Ukraine will affect the stock market? Which stocks are most likely to rise as a result? When large-scale conflict happens, other countries tend to get involved. For America and much of Europe, this means spending more on weapons and aid for the country that’s being attacked.
For investors, this means that the defensive sector is booming. Not only are defense companies like Lockheed Martin getting a lot of business due to this global conflict, but the increased threat means that demand for defense companies is higher than ever. Discover which types of companies are in the defense sector and what global factors affect it, and learn more about the most influential companies that are changing the way war is fought.
This article answers the following questions:
- Which types of companies are in the defense sector?
- What is different about funding in the defense sector over other types of stocks?
- Can you name five of the most influential companies in the defense sector?
- What’s one company that is innovating the way war is fought in the modern era?
What Types of Companies are in the Defense Sector?
Companies that make instruments of war are included in the defense sector. Any public business that builds fighter jets, warships, missiles, satellites, and other technical weapons and tools we use for war is a defense company, and if public, they offer defense stocks.
Whenever America is involved in a military conflict, the demand skyrockets for companies in the defense sector.
A Unique Trait of Defense Stocks
It’s worth noting that there’s a very big difference between how defense companies are funded compared to other types of businesses.
Unlike most companies, businesses in the defense sector get their business from the U.S. Government. You can easily find out which companies have recently received government contracts and how big they are.
Consider the implications of this: If the government has just awarded a company a multi-billion dollar contract, it’s highly unlikely that they’ll suddenly cancel it. It’s this dynamic that gives defense stocks a sense of stability not found in other sectors.
Five of the Top Companies in the Defense Sector
To become more familiar with the defense sector, it helps to know the biggest companies that comprise it.
Explore an overview of five of the top defense companies and consider whether any might be worth adding to your portfolio.
Lockheed Martin Corp. (LMT)
Founded in 1961, Lockheed Martin Corp. (LMT:NYSE) has become a global leader in large-scale military equipment. Specifically, they’re the largest defense company in the world.
As a company that innovates in multiple industries, Lockheed is involved in space, aeronautics, missiles and fire control, and mission systems. One quintessential example of a product Lockheed provides is the F-35 Joint Strike Fighter, which is the most expensive jet ever built.
Boeing Co. (BA)
Known primarily as a producer of commercial aircraft, Boeing Co (BA:NYSE) provides innovative products for the military, security, and space pursuits as well. As an industry titan, Boeing employs more than 140,000 people in 65 countries. While they have a wide range of segments within their massive business, commercial airliners have been their staple for decades. Boeing is responsible for creating all of the most widely used passenger jets, including:
- 737
- 747
- 767
- 777
- 787
They continue innovating in the commercial airline space with their newest addition, the Boeing 787-10 Dreamliner. Ultimately, 90% of the world’s cargo is carried on planes made by Boeing.
Raytheon Technologies Corp. (RTX)
Technology and defense are the industries that Raytheon Technologies Corp. (RTX:NYSE) is known for. From cybersecurity and military aircraft engines to air warfare and missile defense, Raytheon produces many complex weapons and tools for countries around the world. In late 2022, the U.S. Army secured a US$1.2 billion contract with Raytheon for the delivery of six Surface to Air Missile System Batteries, including training and logistics. Contracts like these show that a defense company is in high demand and suggest that it would potentially be a stable investment.
General Dynamics Corp. (GD)
Among their many aerospace and defense pursuits is one that sets them apart from the rest: shipbuilding. From ships to tanks, General Dynamics Corp. (GD:NYSE) produces many of the vehicles used in the American military.
This versatility keeps the company in high demand from not only the U.S. Army but the Navy as well. In August of 2022, General Dynamics NASSCO secured a US$1.4 billion contract to build ships for the U.S. Navy.
Few companies are in as high demand as General Dynamics, which makes them a viable option for investors in the defense sector.
Pfizer Inc. (PFE)
Although Pfizer Inc. (PFE:NYSE) is best known as the creator of vaccines and medications, they’re officially a defense stock. In fact, they were recently awarded US$3.2 billion in a contract with the U.S. Army.
If it’s confusing how the company responsible for the Covid vaccine also has contracts with the U.S. Army, the answer is this: Like other large defense companies, each has many different divisions around the world, and they all produce various products.
When a company is in the news involved in high-profile contracts for pharmaceuticals and defense products, it’s a safe bet that they’re a reputable stock that’s going to be around for a while.
A New Era of Warfare: Two More Stocks to Watch
The biggest companies aren’t the only ones worth watching. Take a look at some up-and-coming companies that are innovating in ways that change war as we know it.
Droneshield (ASX:DRO)
Drones are rapidly becoming a part of civilian and military life, and DroneShield Ltd. (DRO:ASX; DRSHF:OTC) is focused on protecting people from this new threat.
Founded in Australia in 2014, DroneShield has been in the news lately for its innovative protection services. With countries like Iran and Russia actively using drones in warfare, DroneShield has developed an array of products aimed at taking them out before they can do damage. One key example is when DroneShield was hired to protect the Brazilian president during their inauguration.
With stocks priced at a fraction of larger companies like Lockheed, DroneShield is a rapidly growing company that may be worthy of your attention.
Red Cat (RCAT)
Another rising defense company that is innovating drone warfare is Red Cat Holdings Inc. (RCAT:NASDAQ). Except in this case, they’re the ones producing a wide range of drones with varying purposes.
In Q3 of 2022, the U.S. Border Patrol purchased over US$1 million in drones from Red Cat. Teal Drones is their subsidiary that creates advanced drones that are used for surveillance, warfare, and other dangerous tasks.
The defense sector includes some of the most innovative companies in the world, as shown by the strides DroneShield and Red Cat have made in drone warfare.
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Disclosures:
Charts provided by the author.
1) Nicholas Napier: I, or members of my immediate household or family, own shares of the following companies mentioned in this article: None. I personally am, or members of my immediate household or family are, paid by the following companies mentioned in this article: None. I determined which companies would be included in this article based on my research and understanding of the sector.
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