The aerospace and defense sector now accounts for about 8% of my investment capital. Although some companies in the industry are already in the $HMWO (-0,17 %) , $TDIV (-0,73 %) or the $VHYL (-0,38 %) portfolio, they were nevertheless added as individual stocks due to their long-term trends and future prospects.
These are $LMT (-1,5 %) , $NOC (-1,72 %) , $AVEX and $AVAV (-3,15 %)
The defense sector is booming for the first time since 1990 due to global conflicts and looming crises—order books are full, jobs are being created, and new plants are being built. Countries are arming themselves with drones, among other things, as well as other equipment and systems, ever since they’ve seen what these are now capable of. Defense capabilities against drones, cyberattacks, and hybrid warfare also play a massive role and require nations to arm themselves against these threats.
In addition to the current boom, however, this industry is also interesting for another reason: it is quite recession-proof due to its customer base. Furthermore, there are high barriers to market entry, few competitors, and the customers are almost exclusively governments—which also have maintenance and upgrade contracts in place for decades to come—and, last but not least, a certain level of trust among users in the systems’ performance.
Even though one might sometimes get the impression that NATO is falling apart, many systems and pieces of equipment are still compatible with one another—or are intended to become so in the future—which greatly expands the list of potential customers.
Disadvantages of the industry? A high concentration of customers, development risks, export restrictions, political interference—sometimes sensible, sometimes less so—and if a company falls behind technologically, it could very quickly lose ground.
While $LMT (-1,5 %) and $NOC (-1,72 %) have been established in the industry for years and are growing through scaling, diversification, and expertise, $AVEX and $AVAV (-3,15 %) represent, in my view, the future of military development and thus represent a growth bet on nations’ drive to deploy autonomous systems in crisis zones.
My conclusion is this: Anyone who actively chooses to include defense industry stocks in their portfolio accepts an ethical dilemma, but benefits from tremendous predictability, structural tailwinds, as well as technological change and the associated government spending.
Final Thoughts:
If world peace were to break out tomorrow—then, by the way, I would be more than happy and more than willing to pay the price for it in the form of losses!
*contains AI-generated images*
