Defense Stocks: Smart Money Moved a Year Ago — The Secret Behind ITA ETF's 90% Return

TL;DR

The ITA defense ETF has returned 90% over the past year, with institutional money flowing in for at least 12 months prior

RTX (Raytheon) has a $251 billion order backlog, Lockheed Martin $194 billion, and Northrop Grumman $95 billion — all at record highs

Operating and support costs account for 70% of a weapons system's total lifecycle cost, guaranteeing decades of recurring revenue

The U.S. defense budget is projected to grow from $1 trillion to $1.5 trillion, creating opportunities across the entire supply chain

Follow the Money, Not the Headlines

Before diving into defense stock analysis, one thing needs to be clear: I didn't start tracking defense stocks because I predicted a war. I started because I could see institutional money flowing into the defense sector on the charts.

The most important factor in investing isn't the business model or the CEO's vision. It's where the money is flowing. And smart money has been quietly entering defense stocks for at least a year. The ITA ETF's 90% one-year return is the proof.

What the Big Three's Order Backlogs Tell Us

The order backlogs at major U.S. defense contractors are currently at all-time highs.

Company	Order Backlog	Key Products
RTX (formerly Raytheon)	$251 billion	Patriot missiles, radar systems
Lockheed Martin	$194 billion	F-35 fighter jets, THAAD, PAC-3 missiles
Northrop Grumman	$95 billion	B-21 stealth bombers, Sentinel ICBM

Think about what these numbers mean. RTX's $251 billion backlog represents several years of revenue that's already locked in. These aren't speculative projections — they're signed contracts waiting to be fulfilled.

The scale of current consumption is equally staggering. A single Patriot missile costs roughly $4 million. An F-35 runs about $80 million. A THAAD interceptor battery costs approximately $800 million.

The Real Revenue Model Most Investors Miss

There's a critical insight that most retail investors overlook. The real profits in defense aren't from selling weapons — they come from everything after the sale.

The U.S. government estimates that operating and support costs account for approximately 70% of a weapons system's total lifecycle cost. When Lockheed Martin sells an F-35, they're not selling a plane. They're selling decades of maintenance, upgrades, parts, software updates, and training services.

Cost Category	Share	Nature
Initial contract (weapon purchase)	~30%	One-time
Operations & maintenance	~70%	Decades of recurring revenue

This is essentially a SaaS-like business model. One contract guarantees recurring revenue for decades. This is the core reason defense stocks deliver strong long-term performance.

ETF Approach — ITA and SHLD

If picking individual defense stocks feels too risky, ETFs offer a diversified alternative.

ITA (iShares U.S. Aerospace & Defense ETF): The flagship ETF for broad exposure to U.S. aerospace and defense. It has returned approximately 90% over the past year.

SHLD (Global X Defense Tech ETF): Focused specifically on defense technology with broader global exposure.

Rather than betting on a single company, you're investing across the entire sector, which reduces individual company risk.

Opportunities Beyond the Big Names — Subcontractors and Suppliers

Beyond RTX, Lockheed Martin, and Northrop Grumman, hundreds of subcontractors supply sensors, chips, specialized materials, and other critical components. Some of these consistently outperform the larger names.

L3Harris Technologies: A manufacturer of communication systems and sensors. Less famous than Lockheed, but it often delivers better returns precisely because it's a less crowded trade.

With the U.S. defense budget projected to grow from approximately $1 trillion to $1.5 trillion, the benefits will cascade throughout the entire supply chain, not just the prime contractors.

More Important Than Buying — Knowing When to Sell

Whether it's defense stocks or any other asset, the principle I emphasize most is knowing when to sell. The reason 90% of retail investors fail isn't because they buy poorly — it's because they don't know when to exit.

Money in investing is made when you sell, not when you buy. Before purchasing any asset, you must have an exit strategy in place. Enter when institutional money is flowing in, exit when it starts flowing out. This is the essence of following money flows.

Investment Implications

Track institutional money flows on charts. The real signal is the movement of money, not the news
Pay attention to order backlogs. Hundreds of billions in backlog means years of revenue visibility
Understand the maintenance revenue model. The 70% recurring revenue from operations matters more than the initial contract
Look beyond the large-caps. Companies like L3Harris offer opportunities that are sometimes better than the headline names
Always establish a sell strategy first. Defining your exit before you enter is the most important investment principle

FAQ

Q: Defense stocks are already up 90% — is it too late to get in? A: The key question is whether institutional money is still flowing in. Given the defense budget growth trajectory and record backlog levels, the structural growth drivers remain intact. However, short-term corrections after sharp rallies are always possible, so dollar-cost averaging and a clear sell strategy are essential.

Q: Is investing in defense stocks ethically problematic? A: This is entirely a matter of personal values. Choosing not to invest is a perfectly rational decision. However, understanding money flows and market structure is valuable regardless of what investment decisions you ultimately make.

Q: Individual defense stocks or ETFs — which is better? A: Individual stocks offer higher return potential but carry greater risk. ETFs (ITA, SHLD) diversify across the sector, reducing single-company risk. Choose based on your experience level and risk tolerance — if you're starting out, ETFs are the safer entry point.

Q: How long does it take for defense budget increases to show up in company earnings? A: Typically 6–12 months from budget approval to contract signing, and 1–2 years before revenue materializes. However, stock prices tend to front-run expectations, so shares often move starting from the budget announcement itself.

This article is for informational and analytical purposes only. It does not constitute investment advice. Please consult a qualified financial advisor before making investment decisions.