The Peace Dividend Is Over
After 30 years of declining defense budgets, NATO is rearming. Every member state is racing to hit — and exceed — the 2% of GDP spending target. Poland is at 4%. Germany passed the largest defense budget increase since WWII. The UK, France, and even traditionally neutral nations like Finland and Sweden are building up. This is a multi-decade procurement cycle and the investment opportunity is enormous.
Why Now
Russia's invasion of Ukraine proved that major land war in Europe is possible. Iran conflict demonstrates that the Middle East remains a tinderbox. China's military buildup threatens the Pacific. Three simultaneous theaters of concern = unprecedented peacetime defense spending. NATO's combined defense budget is approaching $1.3 trillion annually.
The Top Stocks
Lockheed Martin (LMT): F-35 fighter jet orders are backlogged for years. Every NATO country wants them. Plus missiles (HIMARS proved devastating in Ukraine), space systems, and missile defense. $500+ billion backlog. Dividend yield: 2.5%.
RTX Corporation (RTX): Patriot missile systems (proven in Ukraine and Middle East). Pratt & Whitney engines power most military aircraft. Raytheon missiles are the backbone of Western air defense. Dividend yield: 2.3%.
Rheinmetall (Germany): The biggest European defense beneficiary. Ammunition, armored vehicles, and air defense systems. Stock has 5x'd since 2022. This is what happens when Germany actually spends on defense.
BAE Systems (UK): Europe's largest defense contractor. Submarines, armored vehicles, electronic warfare. Beneficiary of UK and broader European rearmament.
How to Play It
ITA ETF: iShares US Aerospace & Defense. Broad exposure to all major US defense contractors. Simple, diversified. Individual picks: LMT and RTX for US exposure, Rheinmetall for European. Time horizon: This is a 5-10 year theme, not a trade. Defense procurement cycles are long, and we're in the early innings.
