Part of the bull case for shipbuilders is that the U.S. Navy is overburdened and in need of expansion. On this segment of Industry Focus: Energy, The Motley Fool's Nick Sciple and Fool.com contributor Lou Whiteman discuss how new technologies deployed for missile detection and defense could ease some of the Navy's burden, and perhaps lessen the need for a complete fleet overhaul.
A full transcript follows the video.
This video was recorded on Jan. 31, 2019.
Nick Sciple: One last thing I want to mention when it comes to the Missile Defense program, you mentioned this in one of the articles that I read on fool.com recently, is there new opportunities for these aerospace companies when it comes to missile defense; however, some shipbuilders may be impacted as we shift how we structure our missile defense resources. Can you talk a little bit about what trickle-down impact that may have outside of the missile industry?
Lou Whiteman: All of our branches of government, as is normally the case, makes a case for why they need investment, why they need to expand. I think the Navy's case was the best. The Navy is worn down. The President ran on the idea of a 355-ship fleet -- which would be pretty substantial, we're under 300 right now -- in part because the Navy's role is so vast and its territory so vast. One of the Navy's important jobs right now is, their destroyers are out on most of the Pacific, but all over the world. They're our eyes and ears for missile defense right now. The Aegis System that's on our destroyers is our primary detection system for a lethal threat. Hopefully with these new sensors, and hopefully with this new push to get better at missile detection, the destroyers won't be needed. We're talking years down the line, but the number of missions that these destroyers will have to do for missile deterrence will decrease.
In theory, that should ease the burden on the Navy and perhaps let them get by with fewer ships. Everything we're talking about is so expensive, and we're in a time of budget battles. It's going to be natural to look for ways to reduce overall spending in the next five, 10 years. I think a decent case could be made by lawmakers that, look, as we improve other forms of missile defense, we can take this burden off the Navy, maybe we don't need that 355-ship fleet, maybe we don't need to support all of the sailors and all of the support staff that goes with that, which is a huge budget-buster.
The Navy is still growing. The Navy is going to modernize. General Dynamics and Huntington Ingalls are the two contractors most tied to the Navy. This isn't a reason to sell them, but it's certainly something that investors should watch. I think a reasonable case can be made that maybe, the Navy will be able to get by with less with all these other developments going on.
Sciple: Sure. Something to watch for investors, particularly those invested in General Dynamics and Huntington Ingalls.
Lou Whiteman has no position in any of the stocks mentioned. Nick Sciple has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.