For a while now, I've written about how the threats coming from North Korea are a benefit for missile defense, and defense companies. On Friday, that theory was proved correct as the Obama administration announced that it's beefing up missile defense, even though sequestration has gone into effect. Here's what you need to know.
When Barack Obama took office in 2009, he stopped the deployment of intercontinental ballistic missile interceptors, which left the total number at 30. However, with escalating threats from North Korea, and the report that North Korea it has advanced its missile capabilities, the Obama administration has reinstated the Bush administration's missile defense plan. That means missile interceptors will grow to a total of 44.
The additional interceptors are projected to boost the United States' missile defense capabilities by 50% and cost an estimated $1 billion. James Miller, defense undersecretary for policy, said that when North Korea launched a satellite into space, it demonstrated "its mastery of some of the same technologies required for development of an intercontinental ballistic missile." He also stated: "Our concern about Pyongyang's potential ICBM capability is compounded by the regime's focus on developing nuclear weapons. North Korea's third nuclear test last month is obviously a serious concern for all nations."
Miller also said the increase in interceptors is meant to keep ahead of the growing threat coming from North Korea, and Iran, as the U.S. has to be able to counter multiple missile threats. Furthermore, Defense Secretary Chuck Hagel announced that the U.S. is looking to add a second ballistic missile radar instillation in Japan and that the U.S. will be shifting "resources" to boost funding to Lockheed Martin's (NYSE:LMT) Aegis Missile defense system.
The Obama administration and the Pentagon are taking the threats from North Korea and Iran seriously. Along with Lockheed, this is welcome news for Northrop Grumman (NYSE:NOC), the prime contractor on the Missile Defense Agency's Joint National Integration Center, a simulating and war-gaming center that provides answers for America's missile defense capabilities. It's also good news for Boeing (NYSE:BA), which makes ground-based interceptors -- our first line of defense against missiles -- and for Raytheon (NYSE:RTN), which builds the SM-3, a defense weapon used to destroy incoming ballistic missiles.
Kim Jong-un isn't backing down, and what he'll do in the future is anyone's guess. Luckily, America has the ability to defend itself and is increasing its ability to counter further threats. We can hope that'll be enough to persuade North Korea not to fire at America. But in the meantime, the emphasis on increased defense capabilities is welcome news for defense contractors, and it shows, once again, why they're essential and great long-term investments.
Fool contributor Katie Spence owns shares of Northrop Grumman. Follow her on Twitter: @TMFKSpence. The Motley Fool owns shares of Lockheed Martin, Northrop Grumman, and Raytheon. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.