With our role as the world’s superpower on the line, you’d think the US military would have shunned investments from China.
The communist-run country clearly has global military ambition written all over it and is challenging the US military on a nearly everyday basis.
The world’s most populous nation is using its fishing fleet, by far the largest on Earth, as a maritime expansion force in the Pacific, Latin America, and Africa.
And as shocking as it may be to hear, between 2010 and 2019, Chinese investments in America’s military jumped a staggering 420%.
Now, America’s entrepreneurial geniuses are coming to the rescue. The Pentagon has quietly set aside $311 million for partnerships with venture capitalists and innovative small tech firms.
With that in mind, today I want to show you how to profit from this new “buy American” program with a small-cap leader beating the broad market by 85.7%…
The Strategic Challenge
Within a few short years, the Chinese economy is going to outpace that of the US. And with a middle class that’s bigger than America’s entire population, it’s looking to keep its economy safe.
And that means acting more like other superpowers, with well-trained armed forces that can protect not only China, but its sphere of influence as well.
China has designs on the South China Sea and it continues to exert soft and hard power on Taiwan, which it considers a breakaway part of the mainland rather than an independent country. And China already has the largest navy in the world.
Where the US used to have relatively free passage for its navy and air force, China is now taking a stand and making sure it has its own sphere of influence that it’s making clear it will protect.
But one other issue that became very clear just last year was a report issued by Govini, an AI-driven defense analysis firm.
The report found the US military’s outsourcing over the years has left the US military strategically vulnerable.
It also reveals that across all production tiers, foreign-based companies (including those in China) make up 75% or more of total suppliers in 7 of the 18 critical industries analyzed.
They found the greatest share in Major Diversified Chemicals, 85%, Electronic Components (like chips used in defense systems) 84%, and Specialty Chemicals, 83%.
What’s more, if Chinese firms are building critical parts and equipment, then it’s highly likely the Chinese military is fully aware of the functionality, strengths, and weaknesses of the systems these parts are being built to run.
Because of this, the Pentagon now very much wants to transition to domestic vendors. It’s backing that up with the $311 million program I noted a moment ago.
And I’ve identified a small cap firm that should do very well under this new Pentagon approach.
Curtiss-Wright Corp. (CW) was birthed by two of the most famous names in all aviation and aeronautics – the Wright Brothers and Glenn Curtiss, the father of naval aviation.
In 1929, the Curtiss Aeroplane and Motor Company merged with the Wright Aeronautical Company and Curtiss-Wright was born.
There’s hardly a more American aerospace or defense firm than this one.
But over the years, the company moved away from engines and plane designs and focused on all the parts that made airplanes function.
That meant world-class engineering, and design. It meant precision parts that could be mass-produced, yet absolutely reliable.
Today, the parts and equipment Curtiss-Wright makes are all No. 1 or No. 2 in their respective end markets.
And those end markets include the defense sector (air, land, and sea), commercial aerospace (it makes the black boxes airlines carry), energy (it’s been making nuclear energy equipment for over 50 years), and industrial.
That last market sector is another plus for this company. It’s a significant player in parts for big equipment that gets put under enormous stress, from Formula One race cars to huge mining machines and heavy trucks needed for infrastructure projects.
And if President Biden’s $2 trillion infrastructure spending bill gets signed into law, Curtiss-Wright will be a significant beneficiary.
This could have a dramatic impact on the firm’s sales and profits. After all, despite its rich history, Curtiss-Wright has a market cap of just $5 billion, a value that is just 4.5% that of defense giant Lockheed Martin Corp. (LMT).
With China driving at global power on so many fronts, the government is even looking into massive investments in defense tech in cyberspace like blockchain.
And just like with Curtiss-Wright in aviation, there are five U.S. companies that can rise to the challenge, and deliver huge profit potential to investors. I talk more about it right here.
Defending Your Portfolio
CW stock actually wasn’t too affected by the pandemic when it hit in March of last year. It dipped lower in July but after rallying, it took its biggest hit just before the November election.
If you recall, many people were anticipating that a Biden presidency and a Democratic Congress would slash military spending or at the very least, keep it at current levels.
But from that low in late October, the stock has taken off. Since then, it has beaten the S&P 500 by 85.7%.
And now, with the Pentagon reaching out to small companies, and the Biden infrastructure plan gaining momentum, I expect to see more upside from this quiet company with a long and distinguished history.
As a matter of fact, I think the company can double its earnings in just a tad over four years.
So, as Curtiss-Wright helps rebuild and protect America, the stock won’t just safeguard your portfolio, it will also add to your net worth.
Cheers and good investing,
Michael A. Robinson