This 100-Year Old Military Technology Makes Raytheon (NYSE: RTN) Stock Today's Best Defense Buy

RTN stock
Raytheon Co. (NYSE: RTN) stock is providing a great profit opportunity right now, even as our leaders in Washington struggle to find a military solution to the growing unrest in the Middle East.

That's because whatever that solution is, you can be sure the defense contracting giant and its portfolio of advanced weapon systems is going to play a huge role.

The growing threat of militant groups, accentuated by the Islamic State of Iraq and al-Sham (ISIS), currently infecting large swaths of land across Syria and Iraq prove that the defense sector is not only a good investment, but a necessary one.

"Right now there are 300 million people on the face of the earth who want to wipe out Western civilization," said Money Morning Chief Investment Strategist Keith Fitz-Gerald.

While U.S. President Barack Obama has tried to strike a less militaristic tone than his predecessor in response to tensions abroad - his campaign pledges centered on winding down foreign engagements and he even walked back the use of airstrikes in Syria last year - the threat of ISIS has triggered a change in the president's typical response.

Now RTN plays an important role in accommodating President Obama's shifting foreign policy posture...

The United States' Changing Tone on Military Action

On Monday, after weeks of tough talk on ISIS, President Obama announced the use of airstrikes on militants in Syria and demanded greater international cooperation in fighting the threat. While at first the president was hesitant to act on the violence that has unfolded in Syria over the last three years, it was ISIS that changed his mind.

To date ISIS has captured territory stretching from the Turkish-Syrian border, across Northern Syrian and into Northern Iraq, including the very vital city of Mosul. The Wall Street Journal described the area captured by ISIS as roughly the size of Belgium.

On Aug. 3, ISIS militants broke through the 650-mile border separating the autonomous region of Iraqi Kurdistan from ISIS-controlled territory and overwhelmed the Kurdish Peshmerga forces, finally pushing through to the town of Sinjar.

ISIS' Rise to Power

ISIS is an Islamic militant group carved out of the remnants of al-Qaeda in Iraq, the terror group that U.S. and coalition forces all but expelled from Iraq at the height of the War on Terror.

Left battered from its clashes with U.S. forces, al-Qaeda in Iraq was able to regroup in Syria years after when popular protests against longstanding President Bashar al-Assad morphed into a bloody, disorganized civil war in 2011. The vacuum of power left by the fighting invited a number of militant groups to the fray, looking at the situation not as an opportunity to inspire change, but to destabilize the region and form a staging ground for greater radical aspirations.

ISIS, led by Abu Bakr al-Baghdadi, emerged as the most sophisticated and well-organized group. Their goal is to create a caliphate across the broader Middle East, in short, to capture territory and establish ironfisted Islamic law in those parts.

Sinjar is home to the Yazidi religious sect, who the militants consider a heretical group. ISIS drove 40,000 refugees, including Yazidis and Iraqi Christians, to Mt. Sinjar, where they were trapped without food and water in what became a growing humanitarian crisis.

It was around this time that President Obama finally folded, and walked back his earlier reluctance to commit U.S. military might in Iraq. The U.S. eventually provided humanitarian aid to the refugees on Mt. Sinjar, and conducted airstrikes to blunt ISIS advances.

The fight is now expanding, and this one technology, of which RTN is its sole developer and distributor, will play an instrumental role in whatever strategy President Obama employs moving forward.

RTN's 100- Year Old Technology Will Be Used Against ISIS

That technology is the cruise missile, which during World War I was still being billed as the "aerial torpedo."

Since then it has morphed into a long-range, precision-guided weapon through a century of upgrades and enhancements. And its most sophisticated incarnation, the Tomahawk, is sole property of RTN.

Mike Roller, a systems engineer and Tomahawk weapon system ship and submarine integrator for RTN, wrote in The Washington Times of the importance of this missile in waging an air war against ISIS.

"Since 1991, Tomahawk has evolved to become more precise and more adaptable, and it remains the nation's weapon of choice for first strike," Roller wrote. "It is not hard to see why."

In the 1980s, the U.S. Department of Defense's Tomahawk cruise missile contract was subject to a bidding war between two chief missile producers, General Dynamics Corp. (NYSE: GD) and McDonnell Douglas Corp.

But after the end of the Cold War and the Gulf War, the defense industry saw a large scale consolidation. GD sold its missile business to Hughes Aircraft Co., a General Motors Co. (NYSE: GM) asset, in 1992.

In 1997, RTN bought Hughes, who had then become the chief producer and distributor of the Tomahawk missile.

The Tomahawk cruise missile has already factored heavily into President Obama's prior military engagements.

More than 110 of Raytheon's Tomahawk cruise missiles were fired from U.S. and British submarines at 20 Libyan air defense positions in a 2011 NATO-led bombing campaign. The mission was to stem advances of then-Libyan Prime Minister Muammar Gaddafi's loyalists, who were threatening a massacre in Benghazi amid a revolution in that country.

And noted military strategists have already suggested that President Obama's developing military campaign to fight ISIS will likely mirror that of his strategy in Libya.

"Using air and missile power to degrade and cripple the Islamic State... requires targeted attacks on all centers where foreign volunteers operate, and the same kind of broad bombing campaign that took place in Libya to deny it the ability to move forces with heavy weapons, armor, and 'technicals,'" Anthony Cordesman, Arleigh A. Burke Chair in Strategy at the Center for Strategic and International Studies wrote in an analysis.

As the Washington Post reported Tuesday, in the latest round of airstrikes against ISIS, the U.S. Navy fired 47 of these cruise missiles from warships in the Persian Gulf and Red Sea.

Money Morning's Fitz-Gerald says there's still more growth to come for Raytheon.

"It's tough to argue that the current environment is going to be anything but profitable for years to come," Fitz-Gerald said. "The company's got plenty of momentum."

He sees the company posting an impressive 15% growth rate in 2016.

Since Aug. 7, when President Obama first authorized airstrikes against militants in Iraq, RTN stock has advanced 13%. Raytheon stock currently trades around $100.

More on the Middle East: Money Morning Global Energy Strategist Dr. Kent Moors sees a holy war breaking out in the Middle East, and while he's seen firsthand how political events can impact the markets, no other crisis was much like this one...

Related Articles: