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In Defense of Obama

By Rich Smith - Updated Apr 5, 2017 at 8:18PM

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Obama on defense.

How will President-elect Obama affect your portfolio? Keep reading our special series for the lowdown.

America awoke Wednesday to a new president-elect -- a Democrat, no less. Given conventional wisdom, which suggests that Republicans would be more favorable to defense-industry companies, what might the effects be from Obama's administration?

Without further ado, here it is, Fools, straight from the donkey's mouth ...

(Which is to say, straight from the Obama-Biden website)
"Barack Obama and Joe Biden support plans to increase the size of the Army by 65,000 soldiers and the Marines by 27,000 troops ... We cannot repeat ... delays in deployment of armored vehicles, body armor and Unmanned Aerial Vehicles that save lives on the frontlines."

Continuing a trend we've seen in the U.S. military as far back as the Kosovo conflict, an Obama-Biden administration declares its primary goal to be safeguarding the lives of our war fighters. As investors, you want to identify the firms that make these products. For MRAPs, that means Force Protection and General Dynamics (NYSE:GD), Navistar (NYSE:NAV) and London Stock Exchange-listed BAE Systems. Those are the biggies.

Moving on to ceramic body armor, your choices are even simpler. One of the leading publicly traded suppliers of the stuff is Ceradyne (NASDAQ:CRDN). Another one, once again, BAE Systems.

As for UAVs -- that's a bit trickier. Everybody who's anybody in aeronautics has a hand in the UAV game. To my mind, Northrop Grumman has the pole position, with UAV products to fit any theater, and in almost any configuration imaginable. But it's really hard to go wrong here: Lockheed Martin (NYSE:LMT), Honeywell (NYSE:HON), Textron, and even tiny AeroVironment (NASDAQ:AVAV), a Motley Fool Rule Breakers recommendation and arguably the leader in small-unit UAV deployment, are all making UAVs and enjoying considerable success selling them to militaries both at home and abroad.

"We must preserve our unparalleled airpower capabilities ... We need ... Unmanned Aerial Vehicles and electronic warfare capabilities ... essential systems like the C-17 cargo and KC-X air refueling aircraft."

There's those UAVs again. Seems you can't find a theater of operations where they're not winging overhead. The clearest beneficiary of this portion of the Obama-Biden defense plan, though, has to be Boeing (NYSE:BA). Not only does it manufacture UAVs, but it's also the maker of the C-17 and the odds-on favorite to build the Air Force's KC-X tanker.

That said, Northrop Grumman (NYSE:NOC) places a close second in this race. We've already noted its dominance in unmanned aircraft. And in the event Boeing does not win the KC-X contract, as of this date, Northrop offers the only alternative.

"We must recapitalize our naval forces ... Obama and Biden will add to the Maritime Pre-Positioning Force Squadrons to support operations ashore and invest in smaller, more capable ships, providing the agility to operate close to shore ..."

A couple of America’s important warship builders include General Dynamics and Northrop Grumman. If your aim is to invest in the prospect of a larger U.S. Navy, period, these are your two best "big-picture" plays.

Smaller-picture, so to speak, I prefer General Dynamics for the sheer number of "irons in the fire" it's got for naval work. First, there's the Littoral Combat Ship program -- the "close to shore" bit from the excerpt above. Second, the "smaller, more capable ships" verbiage seems to refer to the new Joint High Speed Vessel the Navy is working up. General D holds a place on two of the three firms bidding on this work, making it the odds-on favorite here.

Caveat investor
Note that I've not said a word on the crucial subjects of valuation, management integrity, or growth prospects anywhere above, and kindly take this column for what it is: a brief survey of who does what in defense, and how what they do might fit into the professed plans of an Obama-Biden administration -- no more, no less.

But don't worry. We've got four more years -- and a few extra weeks to spare -- to fill in the details on these investing theses. Patience, grasshopper. We'll get there.

Meanwhile, make the Fool your source for all things investing in general, and defense investing in particular. Read:

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Stocks Mentioned

General Dynamics Corporation Stock Quote
General Dynamics Corporation
GD
$213.50 (-1.97%) $-4.28
Ceradyne, Inc. Stock Quote
Ceradyne, Inc.
CRDN
Navistar International Corporation Stock Quote
Navistar International Corporation
NAV
The Boeing Company Stock Quote
The Boeing Company
BA
$120.70 (-5.07%) $-6.44
Honeywell International Inc. Stock Quote
Honeywell International Inc.
HON
$189.75 (-1.50%) $-2.90
Lockheed Martin Corporation Stock Quote
Lockheed Martin Corporation
LMT
$424.15 (-0.34%) $-1.47
Northrop Grumman Corporation Stock Quote
Northrop Grumman Corporation
NOC
$443.33 (-1.15%) $-5.17
AeroVironment, Inc. Stock Quote
AeroVironment, Inc.
AVAV
$84.54 (-0.95%) $0.81

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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