Here Are The 7 Greatest Reasons To Invest In Defense Companies During A Trade War
A trade war creates uncertainty. Where should investors invest during uncertain times? Defense stocks!
Tariffs are in the news.
Where can you invest during uncertain times brought about by a trade war?
Defense stocks.
The government, tariffs, and defense companies prioritize national security.
🚨Problem: Trade Wars Hurt Most Companies
Trade wars make the goods you buy in stores more expensive.
Trade wars make it more expensive for companies to manufacture a product that they currently make.
Tariffs raise the costs for businesses that rely on imports for products.
Companies pass these costs to customers.
You may stop purchasing a product if the price becomes too expensive.
You'll then purchase a similar product that costs less.
Consumers' changing purchasing habits and companies raising prices affect companies' stock prices.
Investors worry about which companies to invest in during a trade war.
✅Solution: Defense Companies Are Built Differently
Trade wars hurt companies that sell to consumers the most.
Tariffs make these products more costly for consumers.
Defense companies primarily sell to the government.
Selling goods to the government insulates these companies from tariffs.
🚀1. Defense Companies' Customers Don’t Care About Price Hikes
Most companies are business-to-consumer.
These businesses sell directly to consumers. Regular people are more likely to change their buying habits if a company raises its prices.
They can purchase from a competitor who has a lower price. Or they can buy the generic brand.
The United States government is the biggest customer of defense manufacturers.
The government won't stop buying because of tariffs.
National security is important.
This is why defense companies are a safe play during uncertain times with tariffs.
🚀2. Defense Companies Don’t Rely On Foreign Suppliers As Much
Most consumer-driven companies rely on China and other countries for their parts.
Tariffs make these parts more expensive.
Defense companies use mainly American suppliers.
Defense companies use American made parts.
Why?
The United States government requires this as a security measure.
Making products in America protects these companies.
Defense products in the United States protect the government from foreign security problems.
🚀3. Defense Spending Keeps Growing
The Military Times writes,
President Donald Trump this week unveiled plans for a $1 trillion defense budget next year, a massive increase that he claimed will provide the country with unmatched military strength for years to come.
The United States military budget continues to grow.
Defense is a priority of the United States government.
The United States needs to protect its citizens at home and abroad.
There is always the threat of war.
Even if there isn’t another world war, there are still skirmishes around the world.
The United States needs weapons to protect its nearly 750 military bases around the world.
Fifth-generation warfare uses cyber warfare, technology, artificial intelligence, and the internet.
Defense spending stays strong during a recession.
Politicians don't want to cut the military budget. It only makes them look weak to their constituents. Politicians prioritize giving money to defense companies.
🚀4. Defense Companies Have Long-Term Contracts
Defense projects take years to build, test, and send the final new product to the government.
Fighter jets, missiles, and warships aren't built overnight. These are massive projects that require highly skilled engineers.
These defense companies sign contracts that last decades with the government.
The government can’t just cancel these contracts and leave the companies in the dust. That would be a breach of contract.
Tariffs won’t cancel these companies' contracts with the government.
Long-term contracts provide defense companies with stable income. Defense companies know how much revenue and profit to project for the upcoming year.
Defense companies can work to pay off any debts that they may have from their revenue and profit.
Defense companies can also invest in research and development to build new cutting-edge missiles.
What does this mean for you as an investor?
A stable investment, asset appreciation, and passive income from the defense companies that pay dividends.
🚀5. Fewer Competitors Means More Pricing Power
There aren't many companies that build defense weapons.
Building fighter jets, long range missiles, tanks, and satellites requires a highly specialized supply chain and a skilled workforce.
Less competition means these companies have more of a moat. It's cost prohibitive for new companies to enter the defense industry.
It's even more difficult for a new company to get contracts from the government when the government already has agreements with established companies.
With fewer competitors than other industries, defense companies have more control over their prices.
The government, Pentagon, and military will still pay for the defense products. They have no choice.
They have to buy them.
It's a matter of national security.
🚀6. Defense Companies' Products Are Always Needed
Many industries sell products that people can live without.
You don't need the latest iPhone. You don't need a high end laptop. You don't need to wear name brand clothes.
Defense products are always in demand.
Why?
The military wants to have the latest and greatest tech and defense weapons.
They want to have better equipment than other countries' militaries.
Wars. Cyberattacks. Space threats.
The United States government must protect its citizens from these dangers.
The high government and military demand means the defense industry always has customers.
🚀7. Trade Wars Actually Help Defense Companies
Tariffs hurt companies that rely on imports from other countries.
Tariffs help companies that already manufacture products in America.
Defense manufacturers already build most of their products in the United States.
A trade war makes defense companies even stronger.
🏁Summary: Defense Stocks Are A Safe Bet
Trade wars hurt many businesses because most companies are business to consumer.
Defense companies are different.
Defense companies have government contracts.
Defense companies don't rely on foreign suppliers as a matter of national security.
Defense stocks are a secure option if you want investments that will be minimally affected by tariffs.
Defense is always in demand!
Disclaimer: This content is for educational, entertainment, and informational purposes only. This is not financial or investment advice. I write online about topics I find interesting. I make mistakes just like everyone else. Always consult a professional before making health, life, financial, investment, tax, or legal decisions.