Investing

The Spoils of War

By John Del Vecchio  |  July 20, 2018

Donald Trump may be the best thing that ever happened to the defense industry.

For companies pumping out missile defense systems and fighter jets, it doesn’t get any better than what’s going on in Washington, circus or no.

Last week, Trump put the screws to other NATO members and pressured the organization to up its military spending.

He’s tired of other countries not carrying their own weight, and he’s not afraid to embarrass world leaders. Publicly.

Politically, defense is Trump’s sweet spot. Railing against NATO countries not carrying their fair share feeds right into his nationalistic playbook and excites his base.

More importantly, this is an easy way for Trump to make good on his promise to increase manufacturing jobs and “Make America Great Again.”

It’s great political theater – and it’s profitable, too.

An uptick in foreign demand will easily absorb unused capacity for U.S.-based defense firms.

Although not every politician supports increased military spending, it’s tough to pull jobs away from blue-collar workers, let alone good, high-paying jobs.

If you’re a member of Congress, good luck defending an anti-job stance during a particularly venomous midterm election.

U.S. defense companies dominate the industry and couldn’t have hoped for a better pitchman. Eight of the top 10 defense contractors are based in the U.S. As NATO countries up their spending, there’s no way they can expand their own military without the help of U.S. producers.

With all the talk about FAANG-type stocks driving the markets higher, the defense space may get lost in the shuffle, but defense stocks don’t look much different from Amazon (Nasdaq: AMZN) or Facebook (Nasdaq: FB).

They’ve skyrocketed along with the more familiar giants. It’s been an incredible run – and it may continue.

When Trump stormed into the presidency, major defense contractors like Lockheed Martin (NYSE: LMT) and Boeing (NYSE: BA) ranked as A+ stocks in my Forensic Accounting Stock Tracker (FAST) software.

These stocks have continued rank extremely high in my system.

This strength shows no signs of waning, and there may be plenty of room to run.

Lockheed, for example, is well positioned in the F-35 space for years to come.

But amazing stock performance creates higher expectations.

The easy money has been made.

Now, the companies must consistently outperform quarter after quarter to sustain higher stock prices.

But not every defense stock has rallied to the moon. That’s why I’m focusing on defense in the August issue of Hidden Profits.

One of the highest-rated stocks in my FAST model is a brand-name company that also has a defense pedigree. As the market has inched toward new highs, this stock has been under a bit of pressure.

That’s what creates opportunity.

Expectations are low, and sentiment is negative. Financial (under)performance may be bottoming out. As a result, this is an A+ profits opportunity hidden in plain sight.

That’s what we aim for in Hidden Profits.

In fact, the last three A+ rated stocks I’ve recommended in Hidden Profits returned 53%, 30%, and 49%, respectively.

And this particular gem has double the upside, with much less downside than the overall market. I like those odds – and you should too.

John Del Vecchio

Author of Rule of 72: How to Compound Your Money and Uncover Hidden Stock Profits and What’s Behind The Numbers: A Guide To Exposing Financial Chicanery And Avoiding Huge Losses In Your Portfolio, John is a forensic accountant at heart. Standing on the shoulders of the great David Tice, James O’Shaughnessy and Dr.MORE FROM AUTHOR