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On Aug. 30, off the coast of Hawaii, sailors aboard the U.S.S. John Paul Jones tracked, intercepted, and shot down a medium-range ballistic missile.
It was a milestone in our nation's defense system.
Doing so put North Korea and Kim Jong Un on notice that we can shoot down their missiles before they reach the U.S. mainland or one of our Asian-Pacific allies.
And it's about time.
North Korea's ballistic missile and nuclear weapons programs have developed much, much faster than the Pentagon predicted. And that has created a threat that has jump-started our need for advanced missile defense technologies – and spending on them.
Indeed, missile defense technology is so critical to the United States right now that it was a big driver behind Northrop Grumman Corp.'s (NYSE: NOC) just-announced plan to acquire Orbital ATK Inc. (NYSE: OA) for $9.2 billion.
Orbital specializes in the missile defense technology that we so badly need right now.
And so the deal reaffirms our belief that Northrop is the best of the big defense plays out there. Northrop has soared nearly 46% since our first recommendation in April 2016 – including a 10% gain since the Sept. 17 announcement of the Orbital deal.
Today I want to go in-depth on why that Orbital deal reinforces our "case" for Northrop.
And I want to show you how you can take a ride on all the defense industry M&A deals we'll be seeing over the next few years.
This single investment gained just 1.75% in 2015 – but 19% in 2016.
So far this year, it's up nearly 30%.
Now imagine what it's going to do in the future as the Trump administration bulks up our military spending…
With North Korea testing a series of missiles and threatening the United States with nuclear war, high-tech missile defense systems have moved from the "should have" category to the "must have" one.
According to data compiled by the U.S. Department of Defense's Missile Defense Agency (MDA), the missile-intercept system we used on Aug. 30 off Hawaii has an 83% success rate.
But the Pentagon wants to do better than that.
In order to protect ourselves, we must do better than that.
To do so, our military leaders have begun developing a new set of land-based nuclear missiles. And they're prepared to spend upward of $80 billion on the project.
The Orbital ATK deal gives Northrop Grumman everything it needs to deliver cutting-edge missiles – and missile defense systems… and more.
Orbital ATK was created in 2015 through a merger of Orbital Inc. and Alliant Techsystems Inc. (ATK). The combined firm now derives around 40% of sales from defense systems, another 35% from flight systems, and around 25% from space systems.
In the two years since Orbital and ATK came together, the firm has built more than 350 advanced tactical missiles and over 190,000 tactical rocket motors.
Northrop sees Orbital's defense segment as the key lure here. That unit rakes in around $2 billion in sales each year from Missile Products, Armament Systems, and Defense Electronics.
Buying Orbital ATK also opens the door to NASA…
The Dream Is Alive
Orbital's Antares launch system can "hurl" heavy payloads – satellites, astronauts, etc. – into low Earth orbit. The Antares rocket is the key launch platform to resupply and transport astronauts to the International Space Station.
The Missile Defense Agency is making a big investment in the Ground-based Midcourse Defense (GMD) system, a "kinetic kill vehicle" that is the next-generation missile interceptor. Northrop builds the control systems for the GMD.
The merger also brings Northrop instant strong market share in the sector for missile launchers that are paired with the control systems. In effect, the firm will become a one-stop shop for GMD.
Northrop Grumman is a $25 billion prime defense contractor that develops and manufactures a wide range a range of advanced tech, including cybersecurity, sensors, directed energy weapons (lasers), and surveillance systems. It also makes the B-2 Spirit stealth bomber and the RQ-4 Global Hawk drone.
Even before its pursuit of Orbital ATK, Northrop had secured $45.3 billion in new orders to be filled over the next few years. To me, that shows that the firm has stayed in tune with the Pentagon's changing needs.
Northrop's stock is trading around $294, giving it a $51.16 billion market cap. And it's a strong performer.
Over the past year, the stock is up more than 33%, nearly doubling the S&P 500's 16.7% return.
I love Northrop Grumman.
But it's not the only defense stock move savvy tech investors ought to consider.
And this next one is a great way to capture all the big gains we're seeing coming out of all the mergers and acquisitions occurring among military contractors…
About the Author
Michael A. Robinson is one of the top financial analysts working today. His book "Overdrawn: The Bailout of American Savings" was a prescient look at the anatomy of the nation's S&L crisis, long before the word "bailout" became part of our daily lexicon. He's a Pulitzer Prize-nominated writer and reporter, lauded by the Columbia Journalism Review for his aggressive style. His 30-year track record as a leading tech analyst has garnered him rave reviews, too. Today he is the editor of the monthly tech investing newsletter Nova-X Report as well as Radical Technology Profits, where he covers truly radical technologies – ones that have the power to sweep across the globe and change the very fabric of our lives – and profit opportunities they give rise to. He also explores "what's next" in the tech investing world at Strategic Tech Investor.