"War is a mere continuation of politics by other means."
A young Prussian general (pictured above) wrote these words nearly 200 years ago, and in the process ensured he would be continue to be quoted, over and over again, through the annals of time. But if I might quibble with Herr Clausewitz's maxim for a moment, war may have as much to do with economics as with politics.
Within America's military, and among companies from Raytheon (NYSE:RTN) to Lockheed Martin (NYSE:LMT) to Boeing (NYSE:BA), economics are driving a transition from 20th Century weaponry to a 21st Century emphasizing laser cannons and railguns -- and even drones that can emit an electromagnetic pulse.
"We have run out of money. Now we must think."
Earlier this year, we laid out the primary dilemma facing America's military (foreshadowed by Winston Churchill's words above). In a nutshell, we've got many missions that need doing ... but too little money to do them all.
Over the past four years, according to The Wall Street Journal, the U.S. defense budget has been cut from $721 billion, to just $560 billion -- a 22% decline. This, says the Journal, is the proximate cause of Raytheon's 10% decline in revenues over the past four years. It's also why America's largest defense contractor, Lockheed Martin, has seen its sales flatline over the same period. (According to data from S&P Capital IQ, while Boeing's commercial business is booming, its military aircraft sales are also down -- 5% in four years).
Yet at the same time as America's military budget has been cut, and its defense contractors squeezed, trouble continues to brew around the world. In Europe, Russia's gotten rambunctious. In the Pacific, China's decided it can build its own islands. And the Middle East ... is simply a mess, with new threats popping up every day. (Al-Qaeda? Sure. ISIS? Okay. Now what the heck is a Houthi?)
This, as I said, is the problem in a nutshell. But what's the solution?
The changing face of America's military
In three words: "Better, faster, cheaper." This maxim of the tech world, it turns out, is remaking America's military as well. Here at The Motley Fool, we've worked hard to keep investors abreast of the American military's investments in such technologies railguns and laser cannons, and "drone" aircraft -- including Boeing's latest, which can emit a non-lethal electromagnetic pulse to disable opponents in a single blast.
One thing that all of these weapons systems have in common is that, while they sound high-tech, and like they should cost a lot of money to develop, they're actually likely to be cheaper to operate than America's military arsenal of today.
Raytheon's Tomahawk missile, for example, costs about $1 million each. It weighs 3,500 pounds, and can deliver the explosive force of a half-ton of TNT to a target 900 miles away. That's pretty impressive. But what if you want to hit a small target without leveling a city block in the process? And what if you want to spend less than $1 million to do it?
Well, companies like Raytheon, General Atomics, and BAE are working to build railguns, where the projectiles are just metal slugs that need no warhead, and derive their destructive force from mass and velocity. A railgun projectile can hit targets 110 miles away, and travels at Mach 7. Its explosive force is roughly equal to half its weight in TNT. So for example, a 23-lb. slug has the explosive force of 12.5 pounds of TNT -- enough to destroy a truck, or a small building, while leaving the surrounding city intact.
And a projectile only costs $25,000 (and probably less, once in mass production).
Laser guns, such as Raytheon, Boeing, and Lockheed Martin are all working on, could be even cheaper. Chief of Naval Research Rear Adm. Matthew Klunder says that the Navy's new Laser Weapon System (LaWS), for example, costs only "about one dollar to shoot." Laser cannons are also both "better" and "faster" than existing weapons systems, being able to strike any target within line of sight, and at the speed of light.
And speaking of speed, just about everyone has some type of "drone" program up and running. Without the need to carry a pilot, and life support systems for a pilot, drone fighter jets can be smaller, faster, and weigh less (and cost less) than piloted fighter jets. And with no pilot to worry about "blacking out" from a high-"g" turn, tomorrow's drone fighter jets going to be a lot more maneuverable than piloted fighters.
The upshot for investors
With an annual budget that's shrinking, but still north of $500 billion, there's a huge market available for the Pentagon's new weapons systems, and a lot of revenue up for grabs by the defense contractors who figure out how to build better, faster, cheaper weapons. Knowing who's at the forefront of the new technologies being adopted by America's military will help you to decide which ones to invest in.
Stay tuned to The Motley Fool, and we'll keep you informed.
Fool contributor Rich Smith does not own shares of, nor is he short, any company named above. You can find him on CAPS, publicly pontificating under the handle TMFDitty, where he's currently ranked No. 342 out of more than 75,000 rated members.
The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not 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.