This "Triple Play" Is Key to Profiting from Energy's Tense "New Normal"

Last Thursday, I filled my Oil & Energy Investor readers in on the best energy investing strategy to use in a world wracked by rising tensions on the Korean Peninsula, the Persian Gulf, and of course, Venezuela.

Now, energy is still making people fortunes. That hasn’t changed, and it’s not likely to in the future, either.

But in an increasingly anxious world, investors will see bigger, more consistent profits when they find a way to bridge two critical sectors: defense and energy.

In fact, in my monthly, paid Energy Advantage and weekly Energy Inner Circle investment research services, I’m adding significantly more “weight” in the stocks that do this very bridging.

Normally, I’d keep these plays close to the vest; after all, it’s only fair. We’ve already enjoyed double-digit gains in these companies, and the upside potential is still enormous.

More importantly, the geopolitical situation is changing so quickly, and the impacts are so profound, that I want to make sure everyone is holding these three stocks at a minimum.

So here they are...

Profiting in the Three Hottest Trouble Spots

The companies you’re about to see are all easy to buy and trade, but they run the gamut, from very large providers of military and defense contracts in energy hotspots, to very small firms with an inside track on the latest defense developments.

All these plays share a connection between weapons systems or readiness, and the defense of energy hotspots globally.

From a military standpoint, these firms each provide for one or more of three critical needs in deterring foreign adversaries’ attempted advances on strategic global energy resources and flashpoints. Each one provides a unique and essential solution to a crucial security concern.

As I said, they come from my premium services, where members have already captured double-digit gains on all of them.

Energy and Defense Play No. 1: Northrop Grumman Corp.

Our first pick today is major defense contractor Northrop Grumman Corp. (NYSE: NOC). Northrup is renowned for highly visible, revolutionary platforms such as the Apollo Lunar Module, popularly known as the “Lem,” and the B-2 “Spirit” stealth bomber.

Those are impressive machines, but I recommended Northrop to my premium Energy Advantage subscribers for a different reason...

For a breakthrough that may be the most important piece of military technology in years.

Global Positioning Systems (GPS) have been the mainstay of the American abilities to direct military assets wherever they’re needed, track deployments by friend and foe alike, and direct strikes when warranted. It has incredible accuracy; it can generally bullseye nearly any object on the Earth’s surface to within about 16 feet.

This has helped give it a fundamental “spillover” effect in the civilian sector, as almost anyone who uses a car or smartphone nowadays can tell you.

Unfortunately, GPS has a weakness: It relies on 31 satellites orbiting more than 12,500 miles above the surface to operate. Those satellite networks are now vulnerable to compromise by Chinese, Russian, and others’ technology.

The risk here is significant, running the possibility of blinding entire defense systems and stopping America from striking back at enemies.

[mmpazkzone name="in-story" network="9794" site="307044" id="137008" type="4"]

Especially if simmering tensions with China in the strategically important, energy-rich South China Sea boil over. That’s the region where “dozens” of horrific new Chinese superweapons were recently aimed at the U.S.S. Ronald Reagan while it was on patrol.

That’s where Northrop Grumman comes in. Their breakthrough, called the “Atomic Navigator” chip, is about as large as an apple seed.

But it allows continuous direction and navigation without the need of GPS or satellites. Northrup controls both the patents and defense contracts for the chip.

As the danger of America’s reliance on satellites becomes clearer, Northrup’s shares will ride the way up.

Now, satellites are not the only thing the U.S. military and economy rely on. Computers and the Internet have made life much easier and our military much stronger...

But those technologies are also vulnerabilities – at least right now.

Energy and Defense Play No. 2: The Raytheon Co.

Our second company is another large defense contractor – Raytheon Co. (NYSE: RTN). Over the last several years, Raytheon has spent more than $3.5 billion acquiring 17 of the most innovative cyber firms on the market; the firm currently holds almost 400 cyber security patents.

With roughly $2.5 billion in its war chest, it can pursue pretty much any cyber venture that looks promising.

The result is an amazing project, labeled “Plan X,” that was born from joint efforts by Raytheon and the Pentagon’s legendary advanced research agency, DARPA.

“Plan X” is a direct response to Chinese attempts to cripple U.S. military computer systems, but it also has some very clear advantages to a wide range of American businesses as well… especially energy companies.

You see, the U.S. Department of Homeland Security and the Federal Bureau of Investigation recently warned several big energy firms that they were being targeted in an elaborate hacking campaign.

Just imagine for a moment what a hostile country could do if they managed to hack into an American nuclear reactor and decided to use it for nefarious ends. They could bring the country quickly to its knees, or worse, kill or maim millions of Americans.

It’s Raytheon that stands to acquire the lion’s share of some $65.5 billion in federal contracts on cybersecurity between now and 2020.

Of course, if you’ve been following the news, you’ll know that one of the most pressing threats out there today is North Korea’s missiles...

Our next play is the key to countering Kim Jong Un’s deadly new playthings.

Energy and Defense Play No. 3: Aerojet Rocketdyne Holdings Inc.

Finally, Aerojet Rocketdyne Holdings Inc. (NYSE: AJRD) is a smaller, $2.2 billion market-cap contractor you may not have even heard of.

Thing is, it’s front and center in what may be the most important defense niche we’ll talk about today.

Aerojet offers aerospace and defense products and systems for the U.S. government, including the Department of Defense, the National Aeronautics and Space Administration (NASA), and other contractors, as well as for the commercial sector.

The company also provides propulsion systems of different kinds for missile defense systems, in-space use, precision tactical systems, and much more – as well as for civil and commercial purposes.

Now, I’ve been tracking defense-related companies for some time, owing to the direct connection between U.S. military positions and global energy resources.

This has especially been the case in Asia, where energy and security are tightly linked.  (just look at the rising tensions in the South China Sea, which is rich in energy resources in its own right, as well as being a key shipping lane for oil and natural gas).

As I have noted on several occasions, energy interests are progressively focusing on Asia. That process will continue at least for the next three decades, as the primary increase in global energy demand will be coming from there.

That has turned the disagreement over offshore South China Sea oil and natural gas reserves into a major source of friction with China.

Just further up the coast, the North Korean crisis threatens to destabilize the entire region. Recent developments in North Korea’s missile capability mean that flashpoint could now affect the United States directly.

Fortunately, the United States has a stunning checkmate move that could stop Chinese aggression dead in its tracks. You have to see it to believe it.

Enter the THAAD (Terminal High Altitude Area Defense) missile intercept program, designed to shoot down long-range ICBMs (Intercontinental Ballistic Missiles).

Now, THAAD has 14 consecutive successful tests under its belt, and has just been installed in South Korea to deter and defend against North Korean attacks.

And Aerojet is the primary contractor for the THAAD engine and propulsion systems, along with related missile defense systems designed to intercept short-range missiles.

Now, huge defense provider Lockheed Martin Corp. (LMT) is the principal THAAD provider. But the much smaller Aerojet is the keystone play; it provides the crucial engine systems.

With missile threats becoming more and more pressing, Aerojet will be a main beneficiary of the renewed national defense posture moving forward – and due to its smaller size, Aerojet is positioned to move up much faster than a giant like Lockheed Martin.

Since I recommended them to my premium subscribers, Northrop Grumman is up more than 19%, Raytheon is up almost 24%, and Aerojet is up more than 22%.

But these are only the first steps in what will be some very major gains moving forward.

As Kent mentioned, the South China Sea is a strategically critical chokepoint for global energy and commerce, and the Chinese are threatening U.S. naval forces there with a weapon they call sha shou jian – the Assassin’s Mace. Check out this footage of a real Chinese war game... and watch the Assassin’s Mace make quick work of what might as well be a U.S. aircraft carrier...

Follow Kent on Facebook and Twitter.

About the Author

Dr. Kent Moors is an internationally recognized expert in oil and natural gas policy, risk assessment, and emerging market economic development. He serves as an advisor to many U.S. governors and foreign governments. Kent details his latest global travels in his free Oil & Energy Investor e-letter. He makes specific investment recommendations in his newsletter, the Energy Advantage. For more active investors, he issues shorter-term trades in his Energy Inner Circle.

Read full bio