The United States and Iran reached a "tentative deal" to extend their ceasefire Friday, while negotiations over the fate of Iran's enriched uranium continue, as the Associated Press reported Friday. That's the good news: Despite sporadic exchanges of drone and missile fire last week, the Iran war remains on pause, and the estimated cost of the war remains at its previous $25 billion level.
And now here's the bad news: The actual cost of the war to U.S. taxpayers is probably twice that.
Image source: Getty Images.
It depends on what the definition of $25 billion is
The initial $25 billion figure the Pentagon estimated for the war's cost covered only the cost of replacing munitions expended in fighting it. It's the cost of replacing some:
- 1,000 Tomahawk cruise missiles.
- 1,100 JASSM-ER stealth cruise missiles.
- 1,200 to 1,300 Patriot interceptor missiles.
- 1,000 Precision Strike and ATACMS missiles.
- The literally thousands of Joint Direct Attack Munition (JDAM) kits used to convert thousands of unguided bombs into "smart bombs" used in the later stages of the war.
Replacing all this expended ordnance can be expected to keep Boeing (BA 2.96%), JDAM's manufacturer; RTX Corporation (RTX 2.53%), which makes the Tomahawk; Lockheed Martin (LMT 1.29%), which makes the JASSM-ER, Precision Strike, and ATACMS; and RTX and Lockheed, who both manufacture varieties of the Patriot missile, busy for years.
But this amount covers only the most visible cost of the war, and the most obvious "defense contractors" involved in recovering after the conflict. As CNN reports, U.S. bases around the Persian Gulf sustained damage from Iranian retaliatory strikes that could easily double the war's cost, adding a further $15 billion to $25 billion to the bill.
Cui bono?
Which companies will be involved in this part of the recovery? Perhaps unsurprisingly, RTX and Lockheed will again play leading roles as they replace Patriot and THAAD air defense missile radars destroyed in the conflict. Investors will need to dig through Pentagon contract announcements to guess at the other contractors, unmentioned in CNN's report, that may be hired for the rebuilding effort, however.
Still, making the extra effort could pay off if it reveals to you undervalued stock ideas beyond the usual suspects. Where should you start? One place to look might be this Department of Defense website, which publishes large military contracts as they're awarded.
Keep an eye out for such unusual stock ideas as KBR (KBR +2.60%), Aecom (ACM +2.75%), and Eaton (ETN 0.09%). Each has won Pentagon contracts over the past month, sometimes valued in the hundreds of millions of dollars, and often on retainer for the U.S. Army Corps of Engineers.
NYSE: ACM
Key Data Points
Once the Iran war is well and truly over, these off-the-beaten-track kinds of defense stocks just might be the kinds of companies that Wall Street overlooks -- but that you will not.
