In a move that risks costing President Joe Biden the White House and Democrats control of government, the chaotic pullout of U.S. forces from Afghanistan will long live in the memory of American foreign policy failures in the Middle East. Even more problematic, the catastrophic tragedy may serve to embolden radical insurgents, putting our country at risk of terrorism. Naturally, investors ought to consider some exposure to defense stocks as a precaution.
First, CNBC reported that the Taliban instituted a new interim government in Afghanistan, which serves to push strict Islamic rule over the country. According to journalist Natasha Turak, the “new cabinet of the freshly restored Islamic Emirate of Afghanistan contains no women and no positions for opposition members or ethnic or religious minorities.” Given how quickly the Taliban moved, defense stocks represent a no-brainer investment.
The last thing anyone wants to do in a military conflict is to underestimate the enemy. In this case, it appears that either our military leadership or the Biden administration grossly played down the threat that the Taliban could impose. This is a deeply embarrassing situation to add atop the human tragedy of the chaos. Therefore, in a very cynical sense, defense stocks will likely be beneficiaries of this geopolitical crisis.
Second and more importantly, the Taliban and other extremists in the Middle East are probably not in a live and let live mood. Perhaps it’s the brandishing of the Kalashnikov rifles that give it away. In a recent BBC news reports, Ken McCallum, the current director general of MI5 — the U.K.’s domestic counter-intelligence unit — stated that the U.S. pullout could represent a “morale boost” for extremists. If so, defense stocks will become dubiously relevant.
And while we may be out of Afghanistan, let’s be honest with each other — so long as the U.S. supports Israel, we can expect terrorism threats to unfortunately be a component of the American landscape.
With tensions at a scorching high, you’d be wise to consider these defense stocks to buy:
- Northrop Grumman (NYSE:NOC)
- L3Harris Technologies (NYSE:LHX)
- Huntington Ingalls Industries (NYSE:HII)
- Nice (NASDAQ:NICE)
- Palantir Technologies (NYSE:PLTR)
- Teledyne Technologies (NYSE:TDY)
- Patriot One Technologies (OTCMKTS:PTOTF)
From both an investment and personal level, you should be aware that while Americans have been glued to the Afghanistan crisis, U.S. Customs and Border Protection agents have been managing a multi-decade spike in illegal border crossings, per the Washington Post. Frankly, I’m not sure if the CBP can handle the crisis in our southern border, which is vulnerable to terrorist infiltration. Certainly, defense stocks related to surveillance will play a pivotal role moving forward.
Defense Stocks to Watch: Northrop Grumman (NOC)
In order to establish control of a particular hot zone, air superiority is a must. Otherwise, you risk exposing your ground troops to the wrong end of a turkey shoot. Thanks to Northrop Grumman’s wide array of aeronautics-based innovations, including manned aircraft, avionics and various weapons systems, the military contractor allows our servicemembers to perform their jobs — and more importantly, keep them alive.
This latter point has been a serious sore spot regarding U.S. foreign policy in the Middle East. After so many years removed from the Sept. 11 attacks, few Americans have the appetite for losing more of our brave troops for another people’s country. Therefore, Northrop Grumman’s autonomous systems division — which most notably includes its unmanned aerial vehicles — will likely play a massive role in our future interventionist actions.
In addition, cybersecurity has been a major concern, with state actors and lone-wolf extremists able to impose an asymmetric impact utilizing modern computer technologies. To get ahead of these next-generation threats, Northrop has also ramped up its cyber capabilities, making NOC one of the most worthwhile defense stocks to buy.
L3Harris Technologies (LHX)
One of the most advanced military contractors in the world, L3Harris Technologies specializes in multiple fields, including ultra-relevant categories like surveillance solutions, microwave weaponry and electronic warfare. At a time when security threats are constantly evolving, American and allied military operators need the tools to stay several steps ahead of the enemy. L3Harris does exactly that, making it one of the top defense stocks to buy.
To be honest, it’s difficult to pick out any one business unit that stands out for L3Harris. But if I had to choose, I’d go with the company’s information resilience division. Nowadays, it’s not enough that we protect our data and communications networks from incoming threats. It’s also vital that our defense infrastructure and first responders have the capacity to coordinate an effective response should threats or other crises materialize.
According to MarketsandMarkets, the “global data resiliency solutions market is expected to grow from USD 11.69 billion in 2018 to USD 27.63 billion by 2023, at a CAGR of 18.8% from 2018 to 2023.” Because we have multiple physical vulnerabilities — including the aforementioned southern border — terrorist acts are almost an inevitability. Thus, L3Harris will find itself called to action.
Defense Stocks to Watch: Huntington Ingalls Industries (HII)
One of the main reasons why America is a formidable force and able to respond to threats across the globe is due to the unparalleled reach and capacity of the U.S. Navy. Feeding demand for the ships that serve in the fleet is Huntington Ingalls Industries, this nation’s largest military shipbuilding company. Just on that basis alone, HII is worth consideration in your portfolio of defense stocks.
However, Huntington Ingalls also has strong implications in our ongoing war against terrorism. Back in simpler days in June 2017, Time featured an article contribution by retired Admiral James Stavridis. In his piece, he recognized that most extremists have targeted land and air threats. However, it’s vital that the broader security infrastructure shore up our maritime defenses as well. Stavridis wrote:
“Top counterterrorism units from the FBI to SEAL Team 6 are working to respond to such attacks. But while the cruise industry, commercial shipping companies and governments around the world have increased efforts to make seas and ports safe over the past decade, there are still gaps in our readiness.”
Thus, beyond serving the Navy, look for additional demand by the U.S. Coast Guard and other maritime agencies to bolster Huntington Ingalls’ revenue stream.
Although the word nice is in the company brand name, there’s nothing kind about Nice the corporation if you’re a bad actor on the internet. Founded in 1986 as Neptune Intelligence Computer Engineering by former colleagues in the Israeli army, NICE represents the shifting of the tide in defense stocks.
No longer are military contractors revered merely for their firepower. Instead, the evolving nature of warfare and terrorism dictates that defense-related companies are a step ahead of the enemy in the intellectual realm as well.
That suits NICE just fine, with the company providing exceptional leadership in the financial crime and compliance ecosystem. While the technology firm’s main focus is the civilian sector, it hasn’t gone unnoticed that terrorists aren’t exactly stupid. They know which targets to hit or exploit for maximum impact, which often involve civilian enterprises.
Therefore, it wouldn’t be too much of a stretch to assume that NICE stock will benefit from the heightened threat environment. After all, the Colonial Pipeline cyberbreach taught us that when it comes to defense against extremists, everyone’s in this together.
Defense Stocks to Watch: Palantir Technologies (PLTR)
I hesitate to include Palantir Technologies on this list of defense stocks that are relevant in the era of terrorism in part because I’ve generally been skeptical about the organization. In particular, I haven’t been enthralled with the insider selling.
It’s not just the dumping by Palantir’s executives that worry me. There are plenty of reasons why the top brass may want to trim their holdings. But from the data that Gurufocus provides, I’m only seeing an exiting from the company. So, why should retail investors buy when those closest to the business apparently won’t touch the equity unit with a ten-foot pole?
Suffice to say, I’m probably not going to join you in acquiring PLTR stock. However, I want to be fair in my assessment of defense stocks. If Palantir’s surveillance solutions are as good as advertised — and I must state that some journalists have questioned this narrative — then it could play an important role in managing tomorrow’s terrorism threat.
Controversially, the company has been involved in helping federal agencies round up undocumented migrants, a skill set (for lack of a better phrase) which is desperately needed today because we simply don’t know how many terrorists made it through our borders.
Teledyne Technologies (TDY)
Though perhaps not a household name among defense stocks, Teledyne Technologies is essentially a ubiquitous organization. Even its website admits that you might not have heard of the company but that you probably use products that incorporate its innovations. From instrumentation to digital imaging to engineered systems, Teledyne is perfectly content working hard in the background.
But lately, the company’s defense business unit, especially its surveillance and communications systems will serve critical needs as terror threats heighten from the geopolitically unstable circumstance in the Middle East. Earlier this year, Teledyne bought out FLIR Systems for more than $8 billion. As a standalone company, FLIR provided multiple imaging solutions for civilian and defense applications.
Specifically, FLIR’s advanced sensors and thermal imaging cameras should prove valuable in protecting important infrastructure through outdoor condition monitoring and early fire detection applications. FLIR’s camera systems are housed in incredibly robust casings, with the ability to withstand various conditions. The platforms’ edge computing and Industrial Internet of Things protocols allow for readymade integration into new or already established networks.
Defense Stocks to Watch: Patriot One Technologies (PTOTF)
Any defense protocol — whether you’re talking national defense or self-defense — involves multiple layers. Ideally, you’d like to address or avoid threats before they turn into such. Having failed that, your next best bet is to attempt to neutralize the danger from as far away as possible; for instance, a fighter jet’s long-range missiles.
But no matter how good your systems are, a determined enemy will find a way to break through, thereby getting right into your face. From a counterterrorism standpoint, there’s not much we can do to prevent all terrorist attacks from happening — there are simply too many dangerous people out there to identify and process them all.
Fortunately, we have companies like Patriot One Technologies, which incorporate autonomous artificial intelligence systems to highlight crowd disturbances along with weapons detection and other threats to public safety. Such innovations can help security professionals nip an incident in the bud before it escalates into catastrophe.
That said, the risk factor to PTOTF is that it’s a penny stock. And honestly, it hasn’t performed that well, down 11% year-to-date. Still, if you can stomach surefire volatility in your defense stocks, Patriot One is a name to consider.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.