In October 2021, I received a phone call from an oil trader in London…
“He’s going in,” my friend said. “It’s going to happen by April.”
“No way,” I replied.
“It’s happening. All of the oil traders I talk to have already moved assets out of Russia.”
With that, I knew…
I knew President Vladimir Putin was poised to invade Ukraine. The fact that energy traders started moving capital and assets out of Russia was a damning proposition.
Imagine being a trader in April 2022 after the invasion, and all of your capital and commodities are locked within the borders. You don’t move assets unless something serious lies on the horizon. My friend was 100% correct in his prediction.
The oil trade has been choppy since the invasion. U.S. oil stocks have hit incredible highs… and then sunk to remarkable lows on profit-taking. But look at one specific sector, and you’ll see stocks hitting all-time highs…
I’m talking about the defense industry.
There’s Always Money in Bombs
There’s no shortage of people telling the world to give peace a chance.
But we keep putting the same people who prefer giving war another chance in charge.
Secretary of State Anthony Blinken has never met a foreign policy decision that didn’t involve “bombing” the target. He’s supported every single military action of the United States dating back to the Clinton administration.
Meanwhile, the U.S. finds itself facing military threats on multiple fronts.
The nation provides military support to Ukraine in a proxy war against Russia. It continues to face superiority challenges from China in the Pacific. We have heightened tensions again with North Korea…
To our south, multiple nations are planning war games off the Gulf of Venezuela. And we remain on heightened guard in the Middle East after a 20-year occupation of Afghanistan.
These reasons represent a stunning level of investment in global defense. The U.S. military budget sits north of $800 billion per year, and will likely continue growing in the decades ahead.
There is always money in the military, and we never cut spending.
The Top Name in the Defense Sector
If there’s one name I want my daughter to own — it’s Lockheed Martin Corp. (NYSE: LMT). This is a wide-moat company that generates roughly $65 billion a year in revenue. LMT offers a terrific benefit of income and growth as it continues to develop its F-35 fighter jet program, Sikorsky helicopters, space systems, cybersecurity and missile defense.
I’m talking about a company with an operating cash flow of $3.1 billion — which just rose by 62% annually. That’s one reason why the company just increased its quarterly dividend by another 7% to hit $3 per share. The company also has a backlog, which is work that hasn’t yet been completed, of roughly $140 billion —more than double its annual revenue.
Lockheed Martin has done a great job at returning capital to shareholders. In addition to the dividend hike, it’s also announced a plan to double its share buyback program from $4 billion to $8 billion.
I’d love it if the world could find peace, and we ended war.
But I’ve lived 41 years on this earth, and there’s one additional constant to “death and taxes.” The world will likely continue to be fragile. A well-capitalized defense is a critical — and rational — place to invest.
To your wealth,
Garrett
