A Good Defense Is a Good Offense

One Investment Choice to Help Navigate Through the COVID-19

Safety never sleeps. In a country and world that might be on lock-down due to the infamous COVID-19, it is easy to forget that there are some industries and sectors of the economy that will never stop moving. One of those being the aerospace and defense industry.

The 2019 budget for the Department of Defense was approximately $690 billion. If you think that is a lot, the combined military spending globally for 2019 comes out to be $1.8 trillion. Like it or hate it, the world will never be at complete peace and governments all across the globe want to ensure the safety of their citizens. After all, that is the main function of government, to protect the people they serve.

With all of the uncertainty that is filling the minds of people in America and the rest of the world, it is to no surprise that the stock market has gone down nearly 30% from its previous highs. Now, some may find this the time to sell all of their investments to find solid ground in cash, but at what expense? How much money have people lost due to selling their shares instead of riding the volatile wave that has plagued the stock market since its existence? What goes up, must go down. Likewise, what goes down, must go up. There are cyclical phases to every economy. Those phases arrive due to regulations, wars, or even sicknesses to name a few.

The severity of either of these situations is not to be taken lightly as often times lives and jobs are lost. The reality is though that this has been going on for as long as people have existed and will continue on once you and I are no longer walking this beautiful earth.

Knowing that wars, famine and sickness have always existed, it is easier to look for the sun while you are in the eye of the storm. This hurricane of a market started in China and now it has made its way to mainland America. The good news is that as China was once in the eye of the storm, a new day with new opportunities is beginning to rise. Here in America, we are just beginning to feel the impact of the storm without remembering that this too shall pass. In every disaster there is always an opportunity. With every war that was fought, there was a peace treaty that was signed. With every previous virus that has mutated, a new vaccine was produced. Point is, please do not lose sight of the long-term vision even though the present challenges we face may be difficult.

Although it may be easy to be struck with fear as restaurants, movie theaters and vacation destinations that were once frequently visited have become vacant, do not forget that almost 19 years ago no one was willing to travel on airplanes due to the tragedy that occurred on September 11th.

New safety protocols were put in place, but life continued on and the market began to see new highs. Only 7 years later, the market was then hit with a new financial tragedy that caused millions of jobs to be lost and trillions of dollars in value to be wiped away within months. Fast forward 10 years later and America was prospering once again with a roaring stock market, rising wages, and a job market that benefited the average employee.

In every one of those moments of history, people quickly sold their investments and neglected to participate until prices returned to their previous highs. By doing that, they missed countless of opportunities to become part owners of companies at a present discounted price due to the fear that had ravaged minds all across the world. Remember, you are investing in more than just a stock, you are investing in companies and industries that are necessary for the safety and well being of humanity. Instead of selling during moments of fear, now is the time to lean-into the fear and begin investing in these companies that will rise through the ashes just as they have after the previous tragedies that occurred.

One of the industries to invest in is the defense industry. As I mentioned at the beginning of this, the United States and other countries all across the world are spending billions of dollars a year to maintain safety for their citizens. Although shopping malls and local restaurants are not currently seeing dollars flowing through their businesses (which they will once this sickness is beyond us), there are still hundreds of thousands of people working, military equipment being constructed, and future contracts being fulfilled.

The contracts that are rewarded, the airplanes that are being built, the defense systems being operated and the aircraft carriers being manned, all of this requires continuous funding. Behind these funds are companies that provide these different products and services. So, although the market prices are nearing 5 year lows, for some companies these prices are opening new opportunities to acquire shares of their business at a current discount.

Knowing that the funding for these companies must continuously be fed to ensure the safety of this country, then that means their profitability has not changed. That means the equipment that was being built is going to continue to be constructed because the world of defense cannot stop even as the rest of the world may be in quarantine. Knowing this, that tells us that their current stock prices are priced as low as they are due to fear, not because of logic.

If you are wanting to get invested in an array of aerospace and defense companies, then look no further than the iShares U.S. Aerospace and Defense ETF (ITA). This is the price history of this fund since 2007.

Here are the top 10 companies that this fund gets you invested in:

1. Boeing
2. United Technologies
3. Lockheed Martin
4. L3Harris Technologies
5. TransDigm Group
6. Northrop Grumman
7. General Dynamics
8. Raytheon
9. Teledyne Technologies
10. Arconic Inc.

To help you understand the sheer size of a couple of these companies that are in this fund, Boeing is the biggest exporting company by dollar value for the United States of America. Outside of their 737 Max crisis, Boeing has over 5,700 planes on order.

Lockheed Martin is the largest military contractor in the world. They have over $144 billion worth of work backlogged. Between the U.S. and other allied nations, they all plan to purchase a total of 3,100 F-35’s (the airplanes pictured above) through 2035.

All of this is not to lessen the severity of the virus that is spreading across the globe, but to act as a reminder and an encouragement that life truly does continue. Looking at the long-term, there are countless opportunities presenting themselves. Sometimes you just have to fly above the storm to see them.

*This is not financial advice. For educational purposes only.