There's a 97.6% chance that Donald J. Trump will be America's next President.
This is according to State University of New York at Stony Brook professor Helmut Norpoth , whose self-developed presidential politics algorithm has proven stunningly accurate in past elections, correctly picking the winners of every Presidential election since he invented it in 1996 -- and performed positively in backtesting of presidential winners since 1912, guessing incorrectly only in the 1960 election between Nixon and JFK.
For establishment Republicans (and for Democrats, whether establishment and otherwise), this is not welcome news. But if not Trump, then who else should the Republicans consider nominating? Last week, we took a look at how Trump and his then-archrival, Texas Senator Ted Cruz, compared one to another on the issue of national defense. Today, we're putting two of Trump's other rivals to the test.
Read on to see how Senator Marco Rubio compares to Ohio Governor John Kasich on matters of national defense -- and what each candidate might mean for defense investors.
Last week, I mentioned how "politicians like to keep their policies vague." Well, permit me to eat my words -- because that's not the case with Senator Rubio at all. While Sen. Rubio's campaign page begins with flowing generalities (e.g. "Our military ...needs a serious program of reinvestment and modernization — boosting the size of our forces to do the jobs we ask them to do"), the Senator moves on to specifics rather quickly.
For example, if elected, it's pretty clear President Rubio would like to:
- "increase the size of the Navy to a minimum of 323 ships by 2024."
- build a new aircraft carrier, growing "the carrier force from 10 to 12."
- "build the new Ohio-class Replacement (ORP) ballistic submarine," plus "at least two attack submarines every year."
- and keep at least half of America's 22 Ticonderoga-class guided missile cruisers in service.
All of which implies billions and billions of dollars of new revenues for U.S. military shipbuilders General Dynamics (NYSE:GD) and Huntington Ingalls (NYSE:HII). Both General Dynamics and Huntington Ingalls build nuclear submarines for the Navy. Huntington Ingalls in particular is responsible for building our nuclear aircraft carriers.
Now, you may notice that Sen. Rubio is deafeningly silent on the subject of Littoral Combat Ships, a vessel that's near and dear to the hearts of Lockheed Martin (NYSE:LMT) shareholders in particular. But even here, there's little to fear for Lockheed Martin shareholders -- because in addition to his desire to undertake a buildup of naval forces, Sen. Rubio says he would "accelerate" purchases of Lockheed's F-35A stealth fighter jets for the Air Force -- and "fully integrate the F-35B" variant into the Navy as well.
Those are two big points in Lockheed Martin's favor.
Or President Kasich?
Broadly speaking, Sen. Rubio aims to invest so heavily in defense as to grow the defense budget back to the size established when Robert Gates was Secretary of Defense in 2012. That works out to annual defense expenditures somewhere in the neighborhood of $645 billion -- an $85 billion, or 15% increase over fiscal 2015's defense budget. So how does that compare to what Governor Kasich is proposing?
It's more. A lot more.
While like Sen. Rubio -- like just about everybody running for President, from Trump all the way down to Secretary Clinton and Sen. Sanders -- Gov. Kasich promises "to defeat ISIS, strengthen our military, and work with our allies to confront ongoing threats." But his emphasis is clearly on the last item on that list.
Whereas Sen. Rubio proposes $85 billion in new defense spending annually (about $680 million over a pair of four-year terms), Gov. Kasich's campaign web page touts only $102 billion in increased defense spending -- total -- over eight years. Rather than just throw money at the problem of national defense, Kasich offers a measured approach that combines modest spending increases with "streamlining Pentagon bureaucracy and transforming procurement processes to get new weapons systems into the field on time and on budget." Smaller, better, faster -- and cheaper.
Larger increases in defense spending to combat threats abroad would largely come from U.S. allies. For example, Kasich says "the U.S. must work together with our European allies to strengthen new NATO member states on the front lines with Russia". Outside of NATO, we should be "training and arming Ukrainian forces with the weapons they have requested and which Congress has approved," and selling "advanced seabed acoustic sensors, anti-ship missiles and other defensive equipment" to Japan.
In other words, selling weapons to those who would use them in America's interests -- rather than building and buying more weapons ourselves.
The upshot for investors
So what's the upshot for investors in the defense industry? The election of a President Rubio or a President Kasich -- either one, would probably be good news for defense contractors. Orders for new weapons would flow in abundance under either administration.
The main difference would be in who would pay for those weapons. Rubio wants to buy them for the U.S. military. Kasich would sell them to allies and customers around the globe. Either way though, either of these candidates winning the Presidency would be pretty good news for the defense business.