Risk And Opportunity - Defence sector
Following my last relatively long article, "I took a gamble!", this article goes into more details of the thought process behind one of the 4 bets I took recently.
Defence companies
It is not a "in-topic", yet I deem it important enough to have a space to call its own. Let's get to it.
Defence companies have been a mixed bag since Donald Trump's second term. Why so? Prior to his second coming, lots of people are saying that Trump is good for defence companies given that he is supposedly pro-business and big on defence budget. This cannot be further from the truth.
Donald Trump had already let the world 🌎 knows during his Presidential campaigns that he is looking to end the wars in both Israeli/Palestinian and Russian/Ukrainian. He is also looking to slash government funding. Why would anyone think that defence budget won't be cut?
The shock that jolts the 🌍 is perhaps how he intends to do this.
The White House event triggered a big shift in interest towards European defence companies and rightly so. The European nations must be sure that if they ordered a defence item, it's going to arrive! They cannot control or influence a US based defence company, with Donald Trump looming large front, back and centre.
I afraid that I don't have this foresight even though I had been monitoring European defence companies. For more insights into European defence companies, I would recommend a timely piece from @Shernice軒嬣 2000 , "Heightened Geopolitical Tensions and European Defence Opportunities". I have no idea how to link article in 🐯. It's a waste that the article didn't have the readership it deserves.
For today, that's not my focus. Given the unloved nature of defence sector, you might ask should we be focused on AI, cryptocurrency, quantum computing or even gold and silver? That thinking might mean that we would be missing a once-in-a-lifetime opportunity!
To explain, allow me to first share some of defence bets here and summarise the rationale for doing so.
On top of what I have shared above, I have other US based defence companies, like $Kratos Defense & Security Solutions(KTOS)$ (which I had shared some time ago in a post) and $RTX Corp(RTX)$ (also shared).
More importantly, if you see the above charts, I have sold my positions in the last two, namely $ELECTRO OPTIC SYSTEMS HOLDIN(EOS.AU)$ and $Textron(TXT)$ . No, I didn't think that they are bad companies. I just think that with the looming US defence budget cuts, I need to be more selective.
Why add to $AML3D LTD(AL3.AU)$ and hold on to the rest then? Why some of these Australian based companies?
For those who didn't read my articles on these defence companies, allow me to summarise them. Both AML3D and Titomic are your non-traditional defence companies. They dealt with 3D printing or additive manufacturers. Droneshield, as the name implied, dealt with protecting against drones attacks. KTOS is also big in drones business, but it's more than a drone company. There have been a lot going for it. RTX is a traditional aerospace and defense company, and I won't be touching on it here.
Why the rest then?
US defence sector is likely to undergo a big shift. Traditional defence companies are likely to face pressures, from both US defence departnent and the traditional European allies, obvious reasons as above.
Look no further than the recent joint alliance announcement by Palantir, Anduril and Archer Aviation. Even non-traditional defence company such as $Palantir Technologies Inc.(PLTR)$ is fighting for a seat in the front row. In this review period, everyone has a fighting chance!
No matter the budget cuts, the pie 🥧 is going to be huge for these smaller non-traditional defence companies. Both AML3D and Titomic have recently set up their bases in US for this very purpose. I must say defence and Elon Musk are loving them! The non-traditional fast moving problem solvers... Additive manufacturers cut short manufacturing time tremendously and beat traditional timeframe hands-down!
Not to forget the European... Both AML3D and Titomic, also Droneshield for that matter are in good position to win contract from them, given that they are Australian 🦘 companies and outside the sphere of influence of Donald Trump. This is the very reason why I love them over the traditional, which seems to be on the losing end of the stick.
4 years is not a short time but it could also turn an industry upside down. Now is a good time to position yourselves for the next 4 years... And the new future of defence!
Feel free to ask any questions. Engagement keeps my articles alive [Duh] [Sly] [Cool] [Happy] [Chuckle] [Evil]
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Thanks for the great article @Ah_Meng! Sharp insights here! 🍀🍀🍀