This Struggling Sector is Ready to Rally

by Andrew Zatlin

The defense sector has been woefully underperforming.

And a look at the data doesn’t reveal many positive signs.

But I believe this sector is about to rally.

Let me tell you why…

For a transcript of this video, see below. This transcript has been lightly edited for length and clarity.

This Struggling Sector is Ready to Rally

If I told you I was bullish on the defense industry, you might question my sentiment — and with good reason.

After all, defense contractor Lockheed Martin’s stock (LMT) delivered just 1% gains over the past year. General Dynamics (GD) wasn’t much better at 7%. In fact, the iShares U.S. Aerospace & Defense ETF (ITA) has delivered returns of just 5% over the past twelve months, while the broader stock market created double-digit gains.

Furthermore, I don’t see any current data that would make me want to invest in this sector right now. Hiring at major defense contractors, for example, is down.

So, why am I still convinced that this sector is ready to rally?

Three Reasons I’m Convinced

For starters, demand for military hardware has never been greater. And customer checkbooks are finally coming out.

You see, demand coming from Ukraine and Israel isn’t shocking. Ukraine has already sucked up more than $100 billion worth of equipment. And it will need to replenish its reserves. Israel needs weapons and equipment, too.

But recently, orders from other U.S. allies are starting to line up. Japan, for example, plans to double its $35 billion annual defense budget this year. And it’s likely to turn to American defense companies for the necessary equipment and weapons. Germany is also upping its defense spending.

American allies are ready to spend. And that’ll boost U.S. defense companies. The thing is, it’s not just our allies that are eager for American-made products…

America’s Role as the Global Merchant

Even some of the more unfriendly nations need weapons. Consider Russia, for example.

If the war in Ukraine has taught us one thing, it’s that Russian-made military hardware stinks. It’s so bad, even Russian soldiers don’t want to use it.

Russia is looking everywhere for superior products, including places like Iran and North Korea. But interestingly, the U.S. supplies weapons and equipment to countries like these, too. America has become the primary supplier of defense equipment to the world.

And later this year, we might have a familiar face running the show...

The Military’s Biggest Fan

Donald Trump is on the move, and he may soon wind up back in the Oval Office.

Trump’s a big supporter of the military. And he’s used his admiration for U.S. troops to take a tough stance when it comes to dealing with foreign powers.

Within a month of being elected, Trump tried to block the Nord Stream 2 pipeline, which would’ve given Russia control of gas distribution throughout Europe. Not long after, he started warning European nations that Russia was going to be a problem, and that it was time to strengthen their defenses.

Trump didn’t worry too much about threats from foreign nations. Because if push came to shove, he had the biggest, baddest military to step up to the table.

That’s why I expect Trump to make the military a central campaign theme. It’s a topic that’ll bring him significant support. It’s also a topic he can use to attack Joe Biden.

Let me explain…

Trump’s Goal? Keep Israel in the Spotlight

The conflict in Israel is a big blemish on Biden’s record. He’s going to try and make it disappear from the headlines as the election nears.

Trump, meanwhile, will want the conflict front and center. Why? Because he’s in a “can’t-lose” situation.

You see, the anti-Israel crowd already votes Democratic. So Republicans aren’t going to lose any votes if Trump takes a pro-Israel stand. In fact, he may gain some votes from Jewish Democrats who are unhappy with Biden’s stance on the issue.

As Trump takes a seat in Israel’s corner, it’s likely that talk of military intervention — or at least aid — will come up. And that will also be good news for defense companies.

Get Ready to Rally

I get it — current economic signs suggest the defense sector isn’t one investors should be rushing towards.

But between increasing demand for weapons, America’s position as the global merchant for military equipment, and an election that will keep the military in the spotlight for the foreseeable future…

I’m expecting this sector to rally in a big way. And we’re going to be ready to profit from it.

We’re in it to win it. Zatlin out.

In it to win it,

Moneyball Economics