A Special Note from Michael: Picking outstanding tech stocks is one of the most reliable ways to beat the broader market and claim amazing investment profits, but the moneymaking power of tech goes even further beyond that, driving the most innovative and profitable companies in the economy today. One technological breakthrough has created an entirely new kind of market that has turned broke college students into millionaires. Click here to learn how it could be creating billionaires next.
Imagine a 4-minute commute from Washington, DC to New York, a 230-mile journey.
Or, how about an hour’s journey between New York City and Zurich, Switzerland?
That’s how long it would take if you could travel at Mach 5, which is about 3,836 mph.
And this isn’t science-fiction; it’s science now!
It’s what has become known as hypersonic speed. And while it may not be available to commuters or vacationers – yet – it’s a top priority of US, Chinese, and Russian defense companies.
Make no mistake. Hypersonic technology is vital for America’s security. It also means big bucks for savvy tech investors.
In fact, I have identified a leader in this hot new field that is selling at a roughly 35% discount from the S&P 500.
Even better, it has a track record of beating that benchmark by 160%.
Now then, Deloitte says the hypersonic market has grown by a roughly 26% a year rate since 2014. At that rate, the annual spending is expected to double from $2.6 billion last year in as little as five years.
And that doesn’t include hundreds of millions in venture capital that are flooding in.
What’s more, now that a proof of concept – and the glaring need for this technology – is established, expect growth to come faster.
And wherever there’s growth, there are investment dollars.
Building a Strong Offense…and Defense
As a matter of fact, in early June the US Senate was working on the new defense spending bill for the next fiscal year.
And it’s committed to opening the purse strings specifically for not only hypersonic vehicle development but also for building defenses against our rivals, particularly the Chinese and Russians.
By now, most people are familiar with the acronym for intercontinental ballistic missile (ICBM).
Well now it’s time to learn a new acronym for the coming age – HGV. That stands for hypersonic glide vehicle and it’s what the military is spending huge resources to develop, as well as counter.
But there’s one company that is getting a lot of attention that doesn’t make the same kind of headlines. But rest assured, it will get a big cut of the business.
And this company’s merger with a major player in the aerospace sector may not make the stock go hypersonic, but it will certainly add to its velocity.
A Track Record of Next-Gen Thinking
Leidos Holdings Inc. (LDOS) has been around in one form or another since the late 1960s. Back then, it was established as the go-to government contractor for advance scientific research.
Basically, this covered everything from nuclear weapons to radiation therapies for cancers to electromagnetic weapons.
Leidos’ ability to take cutting edge technology and turn it into pragmatic applications has been a big part of its ability to thrive over the decades.
But it has stayed closer to its scientific roots than the bigger defense firms. It’s not a top tier player in defense, but it’s a strong second-tier player. And that means it’s much better leveraged for growth.
As a matter of fact, in 2016, Leidos bought Lockheed’s Information Systems and Global Solutions business for $4.6 billion to be more competitive in the aerospace and defense markets.
This has been part of a longer-term strategy to build out its aerospace work through its longstanding government and Pentagon relationships.
Late last year, Leidos bought Alabama-based aerospace firm Dynetics for $1.6 billion to further expand its exposure to hypersonics, space, and weapons solutions.
And yet it has managed to absorb those firms and keep fresh cash flowing in. It generates $922 million a year in free cash flow.
I believe this conservative approach is great news for investors. It shows the company is highly efficient. And by definition, that means a laser-like focus on core competencies.
And the fact that it has committed to building out in the aerospace sector – and has done it successfully over the past 4 years- means it sees big things ahead for the space part of aerospace.
Building a Unique Moat
Leidos boasts a workforce of nearly 11,000. Of those, some 38% are former Department of Defense employees. It’s no surprise then that more than a third of its $10+ billion annual revenues come from defense and intel agencies.
That’s where the new Hypersonic and Ballistic Tracking Space Sensor (HBTSS) comes in. As the name implies, this is a sophisticated 21st Century platform that can track objects flying through space at hyper speed.
See, there are significant challenges to tracking HGVs. That means the satellite system that tracked ICBMs last century needs a big upgrade. And the Pentagon is turning to Leidos for a big part of that solution.
Meantime, Leidos also ranks as a major player in the next generation of space travel, which some experts expect to be an $800 billion industry in the next decade.
Last year, Leidos won a $3 billion NASA contract for IT services. It has supported 87 missions from various firms to the International Space Station and is heavily involved in the Artemis moon missions.
And the great thing about all this? The US government is a very reliable customer. That means regardless of the ups and downs on planet Earth, Leidos is making money keeping its head in the stars.
This is the type of stock I have in mind when I say to focus on the long haul. Truth be told, LDOS has lagged the S&P during its recent historic quarter.
But over the past five years, the S&P 500 is up only about 49%. Over that same period, LDOS is up 129%.
With a stock like this, you really can reach for the stars and know you will make a safe – and profitable – landing.
Cheers and good investing,
Michael A. Robinson