SPACE, SPECIAL OPS & CYBER: FOLLOWING THE MONEY FOR FUTURE DEFENSE STOCK GROWTH
While most investors search for the “next big ticket” in the growth stock world, a quiet yet powerful growth stock opportunity has slowly been setting up for a long-term gain, totaling a market share of hundreds of billions over the course of the next decade. No, it’s not a breakthrough product from your tech companies like Apple (AAPL), or a patent-filing machine for wacky delivery ideas from the likes of Bezos and Amazon (AMZN).
If you’re looking in that sector of stocks like the masses of herds of largely fad investors looking to make a quick buck, you’re likely late to the game, and if you’re really unlucky, the herd might turn on you. Instead, a sector that largely goes undiscussed in the broad masses of stock market media are defense stocks. This is because most of what these companies produce, the masses of the country could care less about, at least directly. Don’t believe me? Just ask a random sample of people in an airport whether they care if they’re riding on a Boeing (BA) 737 or an Airbus A380. The answer: most don’t care, and are likely pissed at the likes of airline companies charging a heart and soul for a ticket to fly 200 miles.
But start focusing on the financials of a defense contractor, and the growing (or shrinking between 2009 and 2016) market share of government contracts, and you can find some pretty good opportunity.
A Monolithic Pot of Money: Space
In the course of my years working for the government and specifically with a specialization in space operations and acquisition, I can steer you to at least 5 different news sources or articles, both written and video, that shows the politics of space defense investment growth in just the last 3 years. This ignition began with Generals John Hyten as Air Force Space Command (AFSPC) Commander and Jay Raymond, 14th Air Force Commander during my time at Vandenberg AFB in beautiful central coast California.
General Hyten came along the coat-tails of General Shelton, who had already begun a public campaign to send messages both to foreign, space-faring nations as well as Congress on the need for the Department of Defense (DoD) to be able to properly defend itself from an attack in space during a war campaign. General Raymond further pushed this agenda, especially when the Russian government launched a trio of communications satellites, only to show they had snuck a likely extra maneuverable satellite, cataloged as Object-E, back in 2014.
Fast forward to present day, and now Air Force Space Command and its joint parent command, US Strategic Command have begun a funding push that has taken space capabilities from the middle ground of the defense budget to the front-running priority. The beginning of this money pull and lobbying campaign was the establishment of the Joint Intelligence Combines Space Operations Center (JICSPOC), now renamed the National Space Defense Center (NSDC). Since then, combined commercial integration teams for assured satellite communications (SATCOM), acquisition initiatives through the Space Enterprise Vision, and joint investments in next-generation capabilities like the Army’s experimental High Energy Laser (HEL) prove the huge increase of potential market share defense contractors will have access to bid towards in the next 5-10 years. In this investment space, we even identified one particular company who seems to have placed themselves in this niche.
Special Operations: The Continued Growth of an Ever Changing Force
Rewind back to the nineties (I was younger than 10 years old), and if you were a member of US Special Operations Command (USSOCOM), most of the military culture considered you a kind of bastard child of the military. Fast forward today, and you can’t change the channel on the tube without movies or shows like “Zero Dark Thirty”, “Thirteen Hours” or “The Selection” bathing your retinas. Being in special ops is cool nowadays, and this isn’t just in the eyes of the regular American public. Politicians, especially the main three of the National Command Authority, have increased the use of special operations in the last 6 years as a political means of not putting “boots on ground” in an all out war. Although the term “military advisors” is synonymous with special operations troops, Washington continues to deploy these men and women on a nearly constant basis, largely playing a game of Cold War era proxy war with the latest threat-of-the-day (or years in terms of the Islamic State), but also whack a mole on the latest “high value target”.
From a huge naval mothership outlined on “War is Boring” to act as a potential staging ship for special operations troops and helicopters, to beefing up airborne transportation technologies in the helicopter sector, USSOCOM’s money pile is a good target to watch for when certain companies begin bidding for new contracts. Oh, and don’t forget the Intelligence, Surveillance, and Reconaissance (ISR) side of the house. With the enormous advancements in aircraft technology, new contracts for light attack, hypersonic, and drone capabilities has created an interesting vaccuum to be filled by the likes of Lockheed Martin (LMT), Northrop Grumman (NOG), and Boeing (BA).
Cyber: A Digital Leprechaun
Where’s the rainbow with the pot of money at the end? Nowhere, the pot of money is the rainbow. Cyber defense and security is arguably the most misunderstood area, both for the governments of the world and major cooperations. Companies and agencies alike, will pay top dollar with anyone who can provide an expertise or capability in this particular arena.
Everything in the world is connected to the internet, from the Amazon (AMZN) Alexa’s to your General Motors (GM) vehicle in the garage, you can’t go anywhere without having a “www.” attached to your hip in some way, shape, or form. This increases vulnerability, and has been evinced in recent misgivings and scenarios like the huge ransomware attack “Wanna Cry” .
Any trader or investor who is looking for exposure is this market can look no further than the Symantec’s (SYMC) of the world, the more niche movers like Blackberry (BBRY), or the newly created broad exposure ETFMG Prime Cybersecurity (HACK) fund.
Summary & Caution
Although this space is ripe with investment opportunity, most of the big billion-dollar market cap companies have had a good run since the presidential election. Since the relaunching of this site, and before, we have cautioned the fact that valuations are high, and even the overall spread of fund managers showing up on your latest morning TV show are starting to change their euphoric tune. This is a sign to watch risk and exposure and when the time comes, pounce on a good opportunity when you see it. This area is absolutely one of ours for a focus on future sustainable growth of value.