Virtually every polling organization got it dead wrong. The vaunted Clinton Machine seemed to do everything wrong. I’m not even sure Donald Trump himself believed he was going to win.
Whatever happened, we ended up with the biggest election upset in modern U.S. history
But as interesting as that may be… I don’t care.
You see, I’m not a political analyst. My job is not to play favorites or analyze voting patterns.
I’m here to do one thing – put the very best Singularity Plays squarely in front of you.
We’re likely to see U.S. and global markets reel through at least some instability for the next week or so – in fact, we already saw some Tuesday night. Wall Street hates uncertainty, and that’s precisely what we seem to have now.
But I’m certain about one thing. This instability is masking a huge new opportunity in the “How We Survive” window of the Singularity Matrix.
It’s an opportunity that didn’t even exist before Election Day.
Defense Spending… Going Up
There is little doubt that under a President Donald Trump, the U.S. military will go on one of its biggest growth periods in decades.
In fact, we can think of his election as a bona fide mandate for more defense spending.
Forget about the Bill Clinton peace dividend. Forget about wartime footing under George W. Bush. And certainly forget about our walking away from the role of world’s policeman under Barack Obama.
Trump has said that, in his administration, the United States will “speak loudly.” And if that’s not enough, he plans to use the biggest stick in the world – the U.S. military.
As it stands today, the proposed U.S. Department of Defense budget for fiscal year 2017 (which will certainly be renegotiated by the new administration and majority in both houses of Congress) is already at $582 billion. Then add another $34 billion a year in weapons exports.
That’s a flow of funds about as strong and steady as any business could hope for.
There are almost 3 million people directly employed by the DoD, not including all the contractors and subcontractors.
In 2015, defense spending made up 54% of all U.S. discretionary spending, but the “supercycle” I’ve written of before has barely begun.
And my favorite recommendations are already off to the races…
Trump Defense Mandate Pick No. 1
You can’t start this list with any company but Lockheed Martin Corp. (NYSE: LMT). It is the largest defense contractor in the world by market cap.
Since I first recommended it in November 2014, the stock has run up 35% – and since I suggested it again earlier this year in April, it’s up 14%. Lockheed pulled back recently, even though earnings are very strong.
That spells a great opportunity.
In late October, Lockheed Martin released its third-quarter earnings and reaffirmed that it’s right on track for a banner finish to 2016 and an even bigger year in 2017.
Not only is it the prime military contractor for the U.S. government, but it also has a proven track record of taking on the biggest projects and finishing them successfully.
From the F-16 and A-10 to the F-22, F-35, and C-130, Lockheed has a lock on the aircraft sector – both building the planes and then maintaining and upgrading them for decades.
Earlier in 2016, this aerospace giant bought the world’s leading helicopter maker, Sikorsky, from United Technologies Corp. (NYSE: UTX).
Helicopters are the consistent base hits of the defense sector. There are far more helicopters deployed around the world than fixed-wing aircraft. And they keep troops out of dangerous convoys, where they’re exposed to IEDs and ambushes. The Pentagon is focused on keeping as many of its personnel out of harm’s way as possible – and helicopters are becoming the go-to choice.
Right now, of the 37 helicopters in production, 16 are Sikorsky’s. And Lockheed has six of its own that are some of the most widely used helicopters in the world. Now, Lockheed has 22 of the 37 major production helicopters in the United States (and abroad). And Lockheed Martin is already developing the next-generation helicopters, dub-named ARES.
Net sales were up more than 10% year over year for the same quarter. Net earnings are also expanding at a good clip. Plus, you can’t forget about its impressive 3% dividend that will keep you secure as the transition to a new administration takes place.
Trump Defense Mandate Pick No. 2
And while we’re still talking about air superiority, my second pick, Northrop Grumman Corp. (NYSE: NOC), is certainly a major player. It’s up 21% since I first recommended it in April – far more than the S&P 500 and Dow Jones Industrial Average.
Northrop just received the largest contract in history for the next-generation long-range bomber, the B-21 Raider. The goal is to replace the old workhorse B-52s, which have been in service since the Cold War began, over the course of the next decade or so.
Each plane is estimated to cost $550 million, and the DoD wants 80 to 100 of them, an open-ended $55 billion deal, though some say the deal is closer to $80 billion. That alone is a compelling reason to get on board this stock. But there is much more at work with Northrop Grumman than just this massive long-term bomber project.
This defense contractor is one of the top producers of unmanned aerial vehicles (drones) and other “C5ISR” – command, control, communications, computers, combat systems, intelligences, surveillance, and reconnaissance – equipment for land, air, and sea.
The important “C” here is computers: cybersecurity. It’s one of the hottest sectors at play today, especially in the military and homeland security. Now that Trump is president, his border wall will be built by companies like Northrop Grumman that can deploy various resources.
It reported earnings in late October, and they were impressive. It beat earnings by close to 17% and also guided higher for the rest of the year. It increased its earnings 21% from last quarter. Revenue is already growing at a solid clip.
Growth for Northrop Grumman is just beginning.
Trump Defense Mandate Pick No. 3
Another play on the headlong rush to shore up U.S. military and governmental cybersecurity is through a unique and specific exchange-traded fund (ETF), PureFunds ISE Cyber Security ETF (NYSE Arca: HACK).
Already up 19% in the past six months, there is plenty of headroom left.
According to cybersecurity market research firm Cyber Ventures, the cybersecurity market should eclipse $1 trillion between 2017 and 2021.
And according to security firm McAffee, cyber theft is a $400 billion a year problem. Consulting firm PWC reports that there were nearly 60 million discovered attacks last year. And that only tells the story of those hacks that were discovered.
Also bear in mind that nearly 200 million new people connect to the internet each year. As more and more people come online, the cybersecurity challenges only grow.
And now that the Internet of Everything (IoE) is becoming a reality, you can expect 5.4 billion new devices – from unmanned weaponized vehicles to toasters – vulnerable to hacks.
Some of my favorite cybersecurity companies are in this ETF…
- Symantec Corp. (Nasdaq: SYMC) is the biggest player in cybersecurity for the government as well as everyone else.
- Relative newcomer Palo Alto Networks Inc. (Nasdaq: PANW) has established itself as a state-of-the-art cybersecurity company, and the stock has been on a tear since its 2012 IPO.
- And ManTech International Corp. (Nasdaq: MANT) has specialized in working with the military and intelligence communities for decades. It keeps a low profile but will be a key resource in the ramp up in cybersecurity spending.
This goes even deeper, though…
Trump Defense Mandate Pick No. 4
Satya Nadella’s team is now applying its vast R&D efforts in artificial intelligence (AI) to cybersecurity.
Microsoft dominates the enterprise software market – that division, which targets large organizations like corporations, government agencies, and big nonprofits, brings in around $46 billion in revenue annually. Its closest competitor makes only about $30 billion in revenue… total.
And three of Microsoft’s top five enterprise customers are the U.S. Army, U.S. Navy, and U.S. Air Force. Microsoft builds an AI-powered flight simulator that the armed forces use for training. In civilian branches of government, Microsoft also has a very strong presence.
The military and civilian sectors account for about half of the company’s federal revenue. Moreover, the intelligence community makes up for more than half of those federal enterprise revenues, according to Curt Kulcan, VP of Microsoft’s U.S. Public Sector. And the intelligence sector is seeing the biggest growth of any government sector.
There is big opportunity here. Microsoft stock is up nearly 15% in the past six month. It also kicks off a reliable 2.6% dividend.
Look, the chaos in the market we may see between now and Jan. 20 – Inauguration Day – is going to die down as investors and traders adjust, quite literally, to a new normal.
But the investors who come to grips with the fact that Donald Trump’s upset victory represents a mandate for defense spending (and a big opportunity) will find themselves ahead of the rest of the crowd that’s struggling to find its footing now.
And with so many of these picks paying cold, hard, protective cash right now, they’ll find themselves richer, too.
I’ll leave it for the historians and politicos to read the tea leaves on what Trump’s victory means to the country and the world. From my seat in Silicon Valley, this victory means the “How We Survive” window of the Singularity Matrix is now wide open.
And that means you should “Buy.”
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