Looks like Christmas came a little early for the likes of Lockheed Martin (NYSE: LMT), Northrop Grumman (NYSE: NOC), and RTX (NYSE: RTX)...
Because Congress just passed a new defense budget at an unheard-of level — $886 billion.
The usual suspects on the left launched their standard spiel about how that money could be better spent buying houses for the homeless, but that argument always supposes we'd somehow still have a country without a standing army.
Look, I'd love to live in a peaceful and harmonic utopia too. But if you want to get there, you gotta make like John Lennon and just imagine.
Because in this world, Russia is invading Ukraine in a war that's cost tens of thousands of lives.
In this world, Israel is engaged in a messy, blood-soaked campaign to eliminate the militants keen on its destruction.
In this world, China is harassing its neighbors and U.S. forces in the Pacific and gearing up to invade Taiwan.
In this world, fascists and dictators are cropping up around the world in places like Italy, Hungary, Argentina, and Brazil.
That's why most adults understand the necessity of a robust defense budget, as well as its utility as an economic engine.
That's why the House of Representatives approve the budget by a vote of 310-118 after the Senate passed the bill with its own unanimous vote.
That tells you a lot.
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After all, this is Congress we're talking about, and the House is especially fraught these days.
Remember, these people couldn't even agree on a Speaker a few months ago.
Polarization and gridlock are pervasive. But if there's one thing they can all agree on, it's that we need to feed our defense industry.
Honestly, we really do.
Much of the industry's manufacturing base, supply chains, and R&D projects were left to decay in the wake of the Cold War or upstaged by higher-level priorities in Iraq and Afghanistan.
Meanwhile, near-peer actors like Russia, China, and Iran have been going full bore to build up their defense industries and tech development.
So it's imperative that we not take our foot off the gas just when things were starting to turn around here.
Furthermore, in addition to providing technology and firepower for America's war machine, the defense industry is one of our country's biggest, most consistent economic engines.
It provides tens of thousands of jobs and is a key technological incubator.
And for investors, it's a massive profit generator.
I'm sitting on nearly a dozen gains ranging from 3%–106% (about 20% on average) in my Secret Stock Files portfolio, where I cover defense technology full time.
We're profiting from everything from drones to AI over there, and this budget ensures lucrative contracts will keep coming for the companies we're tracking.
For example, one of the biggest, most lucrative programs I've discussed this year is "Project Wingman," which is a sprawling effort to pair manned fighters with unmanned drones.
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That program has secured $5.8 billion in funding from 2024–28, with a goal of fielding at least 1,000 of the unmanned autonomous aircraft by the end of the decade.
(You can find out more about the company poised to profit most from the Project Wingman program here.)
Meanwhile, on the more traditional side, missiles and munitions got a big boost too.
The Pentagon aims to spend $30.5 billion on munitions next year as we race to backfill the ammunition we've dispatched to Ukraine and construct a more efficient manufacturing chain capable of competing with Russia and China in the event of a major war.
That's big news for RTX and General Dynamics (NYSE: GD).
The bill also expands the list of munitions and countries eligible for emergency and multi-year procurement.
The six new munitions eligible for multi-year buys include Tomahawk Cruise Missiles, Precision Strike Missiles, Mark 48 Torpedoes, Evolved Sea Sparrow Missiles, Rolling Airframe Missiles, and Small-Diameter Bombs.
And now Israel and Taiwan can acquire them more efficiently, along with Ukraine.
Greasing the wheels of procurement and foreign sales is another great way to support the industry in addition to big-ticket spending.
It's also something that will further juice profits for defense contractors and technology suppliers who can count on higher volume and long-term demand for their products.
So there's a lot to like about defense stocks in 2024.
More funding, less red tape, and a newfound sense of urgency all bode well for these companies and their investors.
Fight on,
Jason Simpkins
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