Secure your helmets and fasten your chin straps, defense investors. Defense Secretary Robert Gates is wielding the ax again.
It's been more than a year since Gates last drew a line in the budgetary sand, canceling big-ticket defense projects including Lockheed Martin's
Splish, splash we were taking a bath ...
This week, Gates lugged out another pail of cold fiscal reality and splashed it over anyone who'd earlier managed to avoid the Big Soak.
Querying aircraft carrier builder Northrop Grumman, he asked: "Do we really need 11 carrier strike groups for another 30 years when no other country has more than one?"
For armored-vehicle maker General Dynamics
In short, concludes Gates, amphibious vehicles may be neither "necessary [n]or sensible."
Clearly, trouble's a-brewin'. But as I've said in the past, when one multibillion-dollar defense door closes, another opens. So investors may also want to pay attention to a few concerns that Gates considers more crucial.
For example, the problem of increasing technological prowess among enemy missile forces. Gates warned that our lead here is rapidly "eroding." This calls into question both the wisdom of building $20 billion floating targets (aka aircraft carriers), as well as their survivability on a modern battlefield. And Gates has similar concerns about the risks posed by "stealthy submarines."
Seems to me, though, worries like these bode particularly well for one of Gates' favorite hatchet-throwing targets: Boeing. The company's just fielded its next-generation subhunter, the P-8 Poseidon. It's also got a new Free Electron Laser that's said to be just dandy for shooting down cruise missiles before they can get up close and personal with a Carrier Strike Group. As new problems surface, Boeing's got new solutions.
Weapons programs come and weapons programs go, but the opportunities offered by still-undervalued defense stocks remain.