Why Investors Should Look To Defense Contractors In The New Space Race
It’s 1597. Five years into the Imjin War between Japan and Korea. And Admiral Yi Sun-shin is imprisoned after a Japanese double agent successfully got him jailed and removed as admiral of the Korean fleet.
The Koreans had just suffered a massive defeat. They are down to just 13 ships.
Left with no choice, the King of Korea sends a messenger to Yi’s cell to ask for help. Yi is the only one experienced enough to give them a fighting chance against an enemy 30 times their size.
Yi has never lost any of his 23 battles. But he’s also never been so outnumbered. The only chance to save his nation is to lead the enemy into waters where he can win.
So he sent his fastest warship to the Japanese naval base, hoping they would give pursuit. Yi had chosen a narrow strait so his enemy couldn’t surround him. The waters were also turbulent, and the tides shifted every three hours — something his enemy didn’t know.
The Japanese took the bait and met Yi for what they believed would be a quick victory. As the Japanese entered the narrow straight, Yi led the charge… but none of the other boats followed.
Undeterred, Yi pushed forward, charging at the wall of 300 Japanese warships in front of him. He fired his cannons, and the first ship fell. 299 more to go. But just as Yi planned, the tides turned. The strong waters pushed the enemy back, and the big clunky Japanese ships, unable to maneuver, began to crash into each other.
Ship after ship sinks as Yi’s forces join the fight. The enemy retreats. Korea is saved, and Yi’s status is cemented in Korean history books. Today he is referred to as Admiral Yi Sun-shin — The Savior of Joseon.
War Is Part Of The Human Condition
Humans love to fight. It’s estimated that the human race has only been at peace for just 8% of recorded history. During the 20th century, at least 108 million people were killed in wars. That’s the population of California, Texas, Florida, and New York, combined.
War. This simple three-lettered word is so complex. As humans, we are clearly attracted to it. We like to think our causes are honorable and noble. When we wage war, the rhetoric typically revolves around ethically grounded issues like fighting for our “freedom,” or somebody else’s freedom, the promotion of democracy, the “war on terror,” or the support of oppressed populations.
But it isn’t that simple. Sometimes the reasons we fight can evolve over the course of a war. Underlying motives or stories often develop.
Then there are the human lives that it costs. The economies it destroys… and propels.
The simple fact is that war isn’t going away. And this might seem insensitive, but war isn’t going away because, one, humans love to fight, and two, it’s way too profitable.
America’s Massive Military Budget
Everyone knows the U.S. has a massive defense budget (a hot political topic). We spend more on our military than the next nine countries combined.
To some, this sort of spending seems excessive. I’m not here to debate that.
What I see is a massive market that provides companies (as well as investors) with a fantastic, non-cyclical, recession-resistant industry with steady growth and healthy margins.
And I don’t feel like I’m going too far out on a limb here when I say that defense spending is only going to increase.
You see, for the first time in three generations, a large-scale ground conflict has broken out in Europe. And the risk of it spreading is the highest it has been in decades. Not only do we have the Russia-Ukraine war, but you have China acting aggressively toward Taiwan.
With major threats from Russia and China, the U.S. has little choice but to increase its defense budget. That’s great news for the defense industry.
Now here’s the irony about many defense companies. Sure, they are building million-dollar rockets that we will hopefully never have to use. But many also have a “side hustle” that is more humanitarian.
And right now, that side hustle is booming…
Space Race 2.0
I wrote about the massive amount of money flooding into the space industry in this article. We have billionaires jockeying to make space exploration and travel to space a normal thing.
This has rejuvenated NASA, which plans to invest more than $80 billion in major projects to explore the moon and the solar system.
We might even have the first woman to walk on the moon next year. It’s been nearly five decades since the Apollo program landed Neil Armstrong and Buzz Aldrin on the moon, and the U.S. won the first “Space Race.” NASA’s Artemis program aims to not only put us back on the moon by 2023 but it wants to establish a lunar base and set up a space station orbiting the moon called Gateway. Eventually, NASA will use the moon installations as jump-off points for deeper space exploration.
One benefit of the growing tensions between the U.S. and Russia over the years is that it forced the U.S. government and NASA to shift how they get American astronauts into space.
You see, since retiring the Space Shuttle in 2011, American astronauts have had to hitch rides aboard Russian spacecraft. That’s sort of embarrassing for the national space agency that once staked its reputation on beating the Russians to the moon.
NASA is now partnering with the private sector to get astronauts to the International Space Station (“ISS”) with the Commercial Crew Program (“CCP”). The beauty of the CCP program is that NASA doesn’t have to build, own, or operate spacecraft. They simply buy a ticket on space flights from commercial providers, like Elon Musk’s SpaceX company.
SpaceX developed the Crew Dragon spacecraft for the CCP and has been launching astronauts to the ISS and returning them to earth for NASA since 2020. In fact, on March 3, SpaceX’s Crew-6 mission, which had three astronauts on board just docked at the ISS. And four astronauts on SpaceX’s Crew-5 mission who have been at the ISS for the last six months are expected to return to earth on March 10.
The space economy is blossoming and capturing headlines right now. But it’s only the beginning…
We will see a gigantic boom in space activity, spending, and investment in the coming decade.
Many of the biggest and best defense contractors will also be leading the charge in space. Sure, there will be innovative startups that come along. But right now, as I explained in this article, many of these companies are not ready for primetime. At this point, you want a company with hands firmly in both cookie jars (defense and space).
To paraphrase what I said back then, space may be a “side hustle” for the big defense contractors right now. But I expect it to gradually add up to a huge chunk of their overall business in the years to come. My advice: If you want to invest in this trend, focus on the defense contractors devoting a significant amount of money (and brainpower) to space. And the profits will follow.
You can bet we’ll be along for the ride over at Capital Wealth Letter.
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