US Defence Stocks

What sets US defence stocks apart is their close linkage with government budgets, especially the US Department of Defense (DoD), which secures multi-year contracts with many of these companies. As a result, defence stocks tend to exhibit relatively stable revenue patterns even during volatile market conditions. 

The US Defence Industry

The US has the world’s largest defence budget, $886 billion in FY24, as approved by Congress. This represents nearly 39% of global military spending, according to Stockholm International Peace Research Institute (SIPRI).

Key industry drivers:

• Geopolitical Tensions: Examples include Ukraine-Russia conflict, rising US-China tensions in the Indo-Pacific.
• Technological Innovation: The Pentagon is prioritizing hypersonics, autonomous systems, and space tech, according to the U.S. DoD FY24 Modernization Priorities.
• Long-Term Contracts: Example: Lockheed Martin’s F-35 program runs through 2070 (Source: U.S. Government Accountability Office, 2023).
• NATO and Allied Support: $50 billion in approved foreign military sales in 2023, as per the U.S. Defense Security Cooperation Agency).

Benefits of Investing in US Defence Stocks

1. Stable cash flows: Major U.S. defense companies like Lockheed Martin, and Northrop Grumman often benefit from long-term government contracts, providing predictable revenues.
2. Dividend consistency: Many defense stocks are known for regular, reliable dividend payments, appealing to income investors.
3. Geopolitical resilience: Defense stocks such as Lockheed Martin (LMT), Raytheon (RTX), and Northrop Grumman (NOC) have historically outperformed during periods of international tension or conflict.
4. Access to innovation: Investors gain exposure to advanced sectors like hypersonics, AI, and space systems. Key focuses of firms like L3Harris (LHX) and General Dynamics (GD).
5. Diversification potential: Defense stocks can help balance portfolios, as their returns often diverge from those of more cyclical or tech-heavy sectors.

Risks of Investing in Defence Stocks

• Regulatory and political risks: Defence companies are vulnerable to policy changes, budget delays, and shutdowns that can stall operations or payments. For instance, the 2019 U.S. government shutdown delayed contract payments worth over $2 billion.
• Dependence on government contracts: Heavy reliance on government spending makes defence firms exposed to budget cuts or procurement changes.
• Ethical concerns: Defence firms may face divestment pressures due to environmental, social, and governance (ESG) exclusions. As of 2024, over $2 trillion in assets under management followed ESG mandates that excluded the defence sector.
• Supply chain disruptions: Delays in critical components or materials can slow production and delivery of defence equipment.

How to Invest in US Defence Stocks?

You can invest in Best US Defence Stocks from India by opening a US stock account on the INDmoney app and completing the digital KYC process. You can then fund your US Stocks account. Once the account is funded, you can invest in well-known companies like Lockheed Martin, General Electric, RTX, Boeing and more. INDmoney allows you to start small, with just ₹100, thanks to fractional share options.

How to Analyse Defence Stocks?

Understanding defence stocks requires evaluating key financial and strategic indicators that reflect stability, growth potential, and long-term visibility.

• Contract backlog: A large backlog indicates strong future revenue visibility.
• Government contract share: A high proportion of revenue from government contracts signals stability but also high policy dependence.
• R&D spend: Consistent investment in research and development shows focus on innovation and competitiveness.
• Dividend yield and payout ratio: These metrics reflect shareholder returns and how much profit is distributed versus reinvested.
• Strategic program involvement: Participation in long-term, high-value defence programs boosts revenue stability and geopolitical relevance.