Earlier this month, rival defense contractors Raytheon Co. (NYSE: RTN) and United Technologies Corp. (NYSE: UTX) announced a merger to create the world's second-largest defense contractor, Raytheon Technologies.
The Raytheon-United merger, worth $121 billion, made waves on Wall Street. Since the merger's announcement, Raytheon stock has shot up nearly 4%.
That has investors wondering if now's the right time to pick up Raytheon stock.
And it certainly is. With a Money Morning Stock VQScore™ of 4.45, Raytheon is sitting right in the "Buy Zone." Once the merger is complete, the stock could see another pop, too.
But the merger won't finalize until the first half of 2020 and is still subject to approval from government regulators. That's no guarantee either, just look at the fight Sprint Corp. (NYSE: S) and T-Mobile US Inc. (NASDAQ: TMUS) have had to get approval for their merger.
Instead of worrying about the merger going through, we have an even better defense stock play.
Money Morning Chief Investment Strategist Keith Fitz-Gerald has uncovered another defense stock with the potential to break out.
Today, we're taking a close look at why Keith isn't following the herd over Wall Street's favorite merger - and how his little-known defense stock is on the verge of making savvy shareholders a killing...
Raytheon's Monster Merger Is Just the Tip of the Iceberg
Have no doubt: The Raytheon--United Technology merger is going to revolutionize the defense industry.
After all, Raytheon has been one of Money Morning's favorite stocks for years, locking in a 386.54% gain since we first recommended it in 2011.
Must See: The defense industry is a gold mine - you can't afford to miss this $6 company...
And Keith estimates this growth isn't going to slow down if the merger goes through - combined sales are likely to break $74 billion following approval.
Not to mention the fact that Boeing Co. (NYSE: BA) will be the only firm larger than the new firm - and not by much. In fact, Boeing's revenue is likely to exceed that of Raytheon Technologies by about 28%.
That's a slim margin - one the new firm could easily eclipse under the right market conditions.
But the real news here isn't the numbers; it's the revolutionary potential the merger has for the defense industry.
As Keith explained on FOX Business Network last week, the weapons produced by companies like Raytheon aren't independent developments - they're part of an ecosystem that integrates state-of-the-art weaponry into a larger, collaborative network.
In other words, weapons aren't stand-alone products. Instead, they're designed to work with a range of other kinds of weaponry. After all, designing a new bullet isn't much help if it can't work with the rifles our military already relies on.
Keith believes that Raytheon's merger is going to do wonders for this integration process.
As Keith notes, "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."
In fact, that's why Keith is so excited about one of his top defense stock picks - it's perfectly positioned to make a killing off of the windfall of integration that's sure to follow the Raytheon merger....
This Defense Firm Is on the Verge of Tremendous Profits
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Leonardo SpA (OTCMKTS: FINMF) is an Italian defense contractor with subsidiary firms throughout Europe and the United States, including an office in Arlington, Va., which opened in 2008.
The firm specializes in the development of global satellite communications.
However, the company's real profit potential is something called the Reconfigurable Integrated-weapons Platform (RIwP).
RIwP creates a flexible, scalable weapons system combining maximum crew survivability and lethality, yet it 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.
In short, Leonardo makes the computer, communications, and weapons systems the United States and its partner nations need to give them an upper hand in an increasingly confrontational world.
That's why armed forces around the world are lining up to buy Leonardo's products.
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) are just a few of the firms waiting for the company's state-of-the-art tech.
In fact, the firm just inked a $977 million deal to provide the U.S. Special Operations Command with satellite communications.
And that's likely just the beginning for this company as the Raytheon merger kicks the defense industry into high gear.
Leonardo grew its profits by 62% last year, and its shares trade for a price-to-earnings ratio of just 8. The aerospace/defense industry average is 43. That means you can buy a company with $495 million in profits, a nearly $1 billion contract with the U.S. government, and countries around the world lining up to buy its products for a fraction of what other companies sell for.
While Leonardo is an Italian company, you can buy shares on the over-the-counter market, where they're trading around $13.
Secret Weapon Set to Foil China's Master Plan: The South China Sea is about to get violent, and China has an alarming new superweapon they think gives them the upper hand. Or at least, that's what their war hawks think. But they couldn't be more wrong. Thanks to a small $6 U.S. defense contractor with a top-secret technology, the Pentagon has an ingenious new checkmate move designed to stop a Chinese sneak attack dead in its tracks. Click here to learn more...