Defence stocks can be attractive to trade because these companies experience consistent demand for their services. Governments around the world have large military budgets, with the US having the highest military spend of any country. A significant portion of those funds get directed to defence companies who provide weaponry, supplies and/or aerospace technology to the military and law enforcement, as well as other industries.
As long as there is need for a military, governments will create a budget for it, and defence companies will supply what is needed. In this way, some consider defence stocks to be relatively stable investments, although the stock prices still fluctuate considerably, just like any other stock. These may be referred to as a defensive stock.
When their products are in high demand, such as in times of war (or even when there is potential for war), defence stock prices tend to rise, although traders should be careful when trading on these stocks based on the speculative hype of conflict. If the conflict doesn’t produce a significant increase to the company’s profits, the stock price spike may be short-lived.
Times of peace are not necessarily bad for defence stocks, as most of these companies offer multiple products and services which are in constant demand. Governments still spend money on defence projects even when they are not actively fighting wars. Ships, airplanes, helicopters, weapons, missiles and tactical gear still need to be maintained and serviced. Just like a car needs to be maintained and serviced, even if it isn’t used very often, such is the case with many defence products.
Below, we take a look at a number of US stocks, as well as UK and Canadian defence stocks.