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We just hit the one-year anniversary of one of the largest mergers ever to hit the defense industry - which is coinciding with what could be one of the best buying opportunities its stock will ever give you...
There are plenty of reasons I like the stock the now - and that made me a huge fan of this deal last year.
For one, the merger created a company with more than $16 billion in yearly sales and a whopping $35 billion market cap. It cemented the firm's status as an electronics-centric defense leader, with a strong moat in a field vital to America's security.
First-quarter sales were up by a stunning 168%. Now Mordor Intelligence projects that the sector where this firm excels is going to increase 14% between now and 2024. That's on top of a current base worth $124 billion.
A Rising Contractor
The field's known as C4ISR.
That stands for Command, Control, Computing, Communications, Intelligence, Surveillance, and Reconnaissance. And it's one of the most powerful trends in play today.
L3Harris Technologies Inc. (NYSE: LHX) has been a key player in this space for decades. From secure walkie-talkies for forward-deployed troops to satellite systems to track hypersonic weapons in space, the company has been integral in keeping troops, astronauts, and our country safe, no matter how challenging that may be.
On June 29, 2019, L3 Technologies completed its merger with Harris Corp. L3 began in 1997 by acquiring some divisions spun off after Lockheed Corp. and Martin Marietta merged in 1993 to form Lockheed Martin Corp. (NYSE: LMT).
Over the years, L3 continued to grow its defense and intelligence business, ultimately becoming one of the top 10 defense contractors.
Harris Corp. has been around in one form or another since 1895. No, that's not a typo - 1895, not 1985.
But its early days were focused on developing new technologies. It got into radio broadcasting technology in the 1950s. It was in microwave transmission technology by '59. And by '67, it was integrally involved in the space race, developing integrated circuits and modems.
By the 2000s, Harris was a key member of the select group of companies the military, aerospace, and intel services used to develop key equipment.
And when you build for these sectors, you need to be secure, reliable, and durable. If you can do that, the rewards are long-term business through good and bad times.
Plus, since L3Harris is big enough to be a lead contractor now, it can also use smaller firms as R&D accelerators.
21st Century Warfighting
One of L3Harris' big wins post-9/11 was its cell-site simulators. They pretend to be legitimate cell phone towers but steal the signals for intelligence agencies to capture suspect communications and also triangulate locations.
Harris and L3 were also significant players in developing the networked battlefield and building secure mobile networks for troops to manage drones for C4ISR as well as receive real-time intel.
Make no mistake. LHX has stayed at the forefront of emerging defense tech trends.
Today, that includes hypersonic weapons - ours, but also China's and Russia's. These weapons move at Mach 5, or about 3,836 mph. That cuts counter-offensive reaction times considerably.
Along with the newly minted U.S. Space Force, the government is also developing programs to deal with these next-gen threats out there.
The Hypersonic and Ballistic Tracking Space Sensor is one such project with a current budget of $108 million. The Pentagon is looking to up that to $137 million next year. And the Missile Defense Agency is also looking for $207 million in hypersonic missile defense equipment.
But L3Harris doesn't just have its head in the clouds. It also has products where the boots are on the ground.
In mid-July, it secured a contract to supply the recently-formed 915th Cyber Warfare Battalion, and it just won a $136 million contract for submarine sensors.
L3Harris also just won a $900 million Air Force tech training contract. And in June, the British Royal Navy hired the company to upgrade some of its autonomous underwater vehicles.
In other words, this merger yielded a lot of synergies. But there are still more ahead.
The Moment to Buy Long-Term, Profitable Defense
L3Harris recently set a goal to divest some of the extraneous assets of both companies. Right now, the target totals roughly $1.5 billion.
For this year's first quarter, LHX had a 168% sales increase, more than five times higher than its three-year average. It also had a 21% earnings increase, which is a bit off from the 29% three-year average.
Currently, LHX is out of favor based on technical indicators. And that hands us a prime buying opportunity for a stock with great long-term potential.
Over the past five years, the stock has gained 97.3%. That's 88% better than the S&P 500's returns over the period, not counting the stock's 2.1% dividend.
Add it all up, and you can clearly see that this a great military technology stock to own for the long haul.
After all, if LHX can help keep the nation secure, then it can also safeguard your portfolio.
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About the Author
Michael A. Robinson is a 36-year Silicon Valley veteran and one of the top tech and biotech financial analysts working today. That's because, as a consultant, senior adviser, and board member for Silicon Valley venture capital firms, Michael enjoys privileged access to pioneering CEOs, scientists, and high-profile players. And he brings this entire world of Silicon Valley "insiders" right to you...
- He was one of five people involved in early meetings for the $160 billion "cloud" computing phenomenon.
- He was there as Lee Iacocca and Roger Smith, the CEOs of Chrysler and GM, led the robotics revolution that saved the U.S. automotive industry.
- As cyber-security was becoming a focus of national security, Michael was with Dave DeWalt, the CEO of McAfee, right before Intel acquired his company for $7.8 billion.
This all means the entire world is constantly seeking Michael's insight.
In addition to being a regular guest and panelist on CNBC and Fox Business, he is also a Pulitzer Prize-nominated writer and reporter. His first book Overdrawn: The Bailout of American Savings warned people about the coming financial collapse - years before the word "bailout" became a household word.
Silicon Valley defense publications vie for his analysis. He's worked for Defense Media Network and Signal Magazine, as well as The New York Times, American Enterprise, and The Wall Street Journal.
And even with decades of experience, Michael believes there has never been a moment in time quite like this.
Right now, medical breakthroughs that once took years to develop are moving at a record speed. And that means we are going to see highly lucrative biotech investment opportunities come in fast and furious.
To help you navigate the historic opportunity in biotech, Michael launched the Bio-Tech Profit Alliance.
His other publications include: Strategic Tech Investor, The Nova-X Report, Bio-Technology Profit Alliance and Nexus-9 Network.