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What Are War Babies?

Companies that build missiles are classified as war babies.
Article Details
  • Written By: Luke Arthur
  • Edited By: Heather Bailey
  • Last Modified Date: 08 November 2014
  • Copyright Protected:
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    Conjecture Corporation
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War babies is a term used to describe stocks that deal with companies that build war-related products. These companies tend to provide steady returns for investors and they do even better during times of war. These companies are linked to government contracts which provide a constant buyer for products. Investing in war babies is not for everyone, as some prefer to invest in socially responsible companies.

Some people refer to war babies as defense stocks. These are stocks comprised of defense contractors. Companies that build weapons and military equipment would fit into this category. For example, the companies that build missiles and tanks would be classified as war babies.

In most cases, the profits from these companies are very steady. Even when there is not a war going on, the government is always buying the latest technology produced by these companies. The military has to always have the best equipment and weapons so it can be ready for any type of threat. Due to this fact, investors who put money into war babies generally always have solid performance.

Even though this type of stock provides steady returns, it tends to do even better during times of war. When a war seems inevitable, the price of war babies tends to increase immediately. The prices of these stocks will continue to stay high throughout the war.

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The big risk with investing in these companies is that they could lose their government contracts. As long as the companies are being funded with government dollars, they are quite profitable. Once a company loses its contract with the government, another competitor could step in and take over that portion of the market. Investors in the company that loses its government contract could stand to lose substantial amounts of money.

In order to invest in war babies, an investor has to have a special type of mindset. The investor has to be fine with the idea that his or her dollars are going to promote war. Most investors who invest in this type of stock look at the returns of the stock as being more important than what their money is going to. Many investors who prefer socially responsible investments try to stay away from war babies and any companies associated with promoting violence in the world. Many socially responsible mutual funds will also stay away from these stocks.

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