This Defense Stock Pick Couldn't Be More Timely

As I write this Thursday morning, I'm looking at an image of an oil tanker burning near the strategically vital Strait of Hormuz.

The media is reporting two tankers have been hit in what's being called a "suspected attack" in one of the globe's most volatile flashpoints. It comes at a time of high tension between Iran and Yemen on one hand, and the United States, Saudi Arabia, and the United Arab Emirates on the other.

Am I concerned? Of course. And if you are, too, I sure don't blame you. It's perfectly normal.

But as intelligent investors, we want to reserve judgement until the facts are clear, and - importantly - we absolutely have the breathing room and confidence to do that because of the risk management we have in place.

I can't say as much for everyone else though; crude oil futures have already spiked 4%, and you can almost feel the chaos and fear through the computer monitor. There are a lot of headless chickens running around out there right now, and thankfully we're not among 'em.

Which brings me to today's recommendation.

Not only does it underscore the Total Wealth strategy of following our six Unstoppable Trends (in this case the unfortunate "growth" trend of War, Terrorism, and Ugliness), but it's going to give us a head start on one of the most profitable moves of the next 12 months.

In fact, these shares are already moving quickly, so there's no time to lose...

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Buy This Defense Player Ahead of the Next Merger

Let's start with the Raytheon Co. (NYSE: RTN) and United Technologies Corp. (NYSE: UTX) tie-up. Raytheon, of course, holds coveted "free trade" status in the Money Map Report model portfolio, having given us 386.54% in gains (and counting!) since 2011.

The deal, which is being billed as a "merger of equals", broke Sunday with the announcement of an all-stock deal worth something on the order of $166 billion, according to CNN.

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According to my back-of-the-envelope calculations, combined sales will be between $74 billion and $75 billion, which means the "multiple" is about 1.80x revenue coming into Monday's trading.

Ownership will be split roughly 57% and 43% between existing United Technologies shareholders and Raytheon shareholders - pending an anticipated closure in mid-2020. The deal's already been approved by both boards, so I expect things to go at a more rapid clip than a deal of this size would otherwise.

The merger creates a monster defense contractor that's second only to Boeing Co. (NYSE: BA) and the $101 billion in revenue it produces. But it's the breadth that matters here, and that's what's got my attention.

As I mentioned during a Monday morning appearance on FOX Business Network, defense isn't about distinctness any longer. It's about "plug and play" - the more modular approach to development usually taken by tech companies.

If you've ever operated in a mission-critical environment like I have, you'll recognize what I am about to say immediately. If not, here's what you need to know.

Weapons systems are not developed in isolation; everything works with something else.

You don't just, for example, develop an instrument for an airplane and stuff it in the dash panel. The sensors it uses and the information it provides may have to produce, deliver, and receive information from 100 or more different related systems and subsystems related to missile delivery, aircraft function, oversight, and more.

The Raytheon/United deal is particularly appealing because it will further the more effective and more lethal integration of increasingly data-dependent systems needed in today's threat environment.

Speaking of which, this concept is at the heart of something called the Reconfigurable Integrated-weapons Platform (RIwP).

An Italian Defense Company with a Global Footprint

It's made by Rome, Italy-based Leonardo SpA (OTC: FINMF), formerly the venerable Finmeccanica.

The company is already an established defense contractor with subsidiary companies throughout Europe and the United States, too, since it established its Leonardo DRS subsidiary in Arlington, Va., in 2008. Its key product offerings are in global satellite communications and networking.

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That stuff, in turn, plays a key role in products like the Mounted Family of Computer Systems (MFoCS), deployed in combat vehicles operating in conjunction with tactical sensors, logistics, and combat control.

The RIwP is a great example because it creates a flexible, scalable weapons system combining maximum crew survivability and lethality yet requires minimal training time. Critically, it also provides a "see first, shoot first" capability, which means our warfighters can hit the enemy before they even know we're here if they have to.

The RIwP includes dual-axis, long-range independently sighted weapons for on-the-move targeting, while also allowing advanced fire control, kinetic weapon protection (a growing battlefield problem), and even the ability to rapidly reconfigure to meet emerging, full-spectrum threats.

I realize there's a lot of "alphabet soup" and defense "buzzword bingo" here, but what you need to take away from this is Leonardo makes the computer, communications, and weapons systems that U.S. and allied militaries need to fight as effectively and as safely as they possibly can.

There's a deep roster of existing clients to serve, include the U.S. Army, Canadian Armed Forces, Peruvian Air Force, Brazilian Navy, Polish Ministry of Defense, corporate clients such as Petrobras and Weststar Aviation, and high-volume airports in cities around the world, including Hong Kong, Paris, Rome, Zurich, Lyon, Kuwait City, and Greece, to name a few.

Notable recent contract wins include a $977 million whopper to provide the United States Special Operations Command with satellite communications and contracts for "ruggedized next-generation maintenance" and testing systems. That's battlefield-hardened hi-tech gear that'll make your protective phone case look like tinfoil.

It's easy for us to own Leonardo, too.

You can buy shares directly on the Milan stock exchange, if you'd like, where the ticker is LDO.MI. Right here at home, you can buy shares on the over-the-counter market using Leonardo SpA (OTCMKTS: FINMF), where they're trading around $12.37 as I type.

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About the Author

Keith is a seasoned market analyst and professional trader with more than 37 years of global experience. He is one of very few experts to correctly see both the dot.bomb crisis and the ongoing financial crisis coming ahead of time - and one of even fewer to help millions of investors around the world successfully navigate them both. Forbes hailed him as a "Market Visionary." He is a regular on FOX Business News and Yahoo! Finance, and his observations have been featured in Bloomberg, The Wall Street Journal, WIRED, and MarketWatch. Keith previously led The Money Map Report, Money Map's flagship newsletter, as Chief Investment Strategist, from 20007 to 2020. Keith holds a BS in management and finance from Skidmore College and an MS in international finance (with a focus on Japanese business science) from Chaminade University. He regularly travels the world in search of investment opportunities others don't yet see or understand.

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