A sure bet is an elusive thing with investing and not something an investor can ever really tether their money to; however, one thing remains true: defence spending, especially in the United States, will always be healthy.
It is a well-known fact that the US spends more money on its military than any other country spends on theirs, by far. According to the
Stockholm International Peace Research Institute, the US spent $649 billion (USD) in 2018 on its military, followed by China in 2
nd at $250 billion. Last year, the global military expenditure hit
$1.8 trillion.
“At $735 billion, military expenditure in the Americas in 2018 accounted for 40% of global military spending.”
The 2018 US military budget, according to the
International Institute for Strategic Studies, was $643 billion. In 2018, the US government pumped an extra $37 billion into the Pentagon budget for equipment, on top of $50 billion it added the year before. US President Donald Trump
beating the drum to rally other countries, specifically in the European Union, to spend more on its defence.
(Image via the Interntional Institute for Strategic Studies.Click to enlarge.)
Where there is money to be made, an investment lingers. Images promoting global unrest and a constant threat of attack serve as a reminder that national safeguards are growing, while companies that work to enhance weapons detection systems as a key product are likely one niche in the industry that will grow the fastest. Despite the fact that the US has decided to hold off on launching an airstrike on Iran after it shot down an American drone, investors have been flocking to aerospace and defence stocks.
Such stocks have been seeing a resurgence in 2019 after last year’s selloff. Several major gainers include:
- Liberty Defense Holdings Ltd. (TSX: V.SCAN)
- Patriot One Technologies Inc. (TSX: PAT)
- CAE Inc. (TSX: CAE)
- Lockheed Martin (NYSE: LMT)
- Kratos Defense & Security Solutions Inc. (NASDAQ: KTOS)
Liberty Defense develops a security platform called HEXWAVE for concealed weapon detection in high volume foot traffic areas. It recently proposed that it would test its product at Rogers Arena in Vancouver, BC, through a limited partnership. Liberty Defense also announced that it had signed an MOU with the Office of the Utah Attorney General to beta test HEXWAVE in the state, as well as a partnership with Amsource Capital Ltd. In Georgia.
For a more detailed explanation from Liberty Defense on how HEXWAVE works, click here.
(Stockhouse chart. Click to enlarge.)
In a similar vein, another Canadian security operation, Patriot One Technologies, focuses on threat detection and counter-terrorism solutions with its PATSCAN VRS commercial units. The company recently announced that it has entered into a binding reseller agreement with Cramer Security & Investigations Inc. based in West Virginia to distribute its PATSCAN. Under the five-year agreement, the PATSCAN multi-sensor covert threat detection platform will be deployed across a broad range of Cramer Security’s end customers.
Riding high from a 42% revenue increase in Q4 to $1 billion (CAD), CAE works in defence training, but also security, civil aviation and healthcare. This company develops multiple types of simulators and synthetic exercises that can be sold to customers as an alternative to live training. Recently CAE was awarded a subcontract from Lockheed Martin Canada to begin work during the design phase of the Canadian Surface Combatant ship program. Over the next several years of the design phase, CAE will support combat systems training needs analysis and training media analysis that will contribute to the overall CSC training system design.
CAE Vice President, Business Operations, Joe Armstrong stated - “We are excited to begin work with Lockheed Martin Canada on this critical program for the Royal Canadian Navy as part of Irving Shipbuilding's Canadian Surface Combatant program team.”
(Stockhouse chart. Click to enlarge.)
Lockheed Martin, meanwhile, was awarded a $561.8 Million Contract in late June 2019 from the US Army for its ATACMS missiles, adding to its $7 billion in cash generation from its operation alone, which is nearly double the anticipated total from 2018. Lockheed forecasts that its revenue will expand by 5% to 6% over this year. This, even though Lockheed has found itself losing out on $2.4 billion worth of contracts to Boeing Co. (NYSE: BA) for an Air Force trainer jet, new helicopter and Navy tanker drone. Boeing has made headlines over the negative press around its 737 Max aircrafts crashes, which has had a similarly negative effect on its stock price. Even so, the SPDR Aerospace & Defense Exchange Traded Fund (NYSEARCA: XAR) has seen a 30% jump so far in 2019.
(VH-92A helicopter testing that at The White House. Photo courtesy of the U.S. Marine Corps.)
Finally, Kratos Defense & Security Solutions, Inc., a developer of national security platforms, specifically for the US, its allies and commercial enterprises, boasts a wide swath of endeavours. Its field of operations range from unmanned systems, satellite communications, to cyber security/warfare, microwave electronics, missile defense, with hypersonic systems, training, combat systems and next generation turbo jet and turbo fan engine development. Kratos (named after the Greek legendary character of power and strength), with its Unmanned Systems Division, successfully completed Swedish Defence Materiel Administration’s missile firing “war games” exercise with the German Navy. This highlighted two recent contracts the company signed, one a $4.1 million contract and the other a $5.9 million contract to provide hardware and subsystems support for its C5ISR aerial defense program and platform.
(Stockhouse chart. Click to enlarge.)
There is a clear correlation between the rise in stocks and the increase in spending. The White House’s 2020 National Defense Authorization Act was voted to advance by the Senate Armed Services Committee and will earmark $750 billion toward defence spending, which would be a massive bonus for the industry, to say the least. The implications reach into the tech world for its potential to assess and target digital threats from overseas, opening up $600 million for artificial intelligence and cyber research as the Pentagon prepares to move “into the cloud”.