Tuesday, January 23, 2024
There aren't many teenagers who have the inside scoop on military technology. But growing up, I was one of them.
My dad was the senior military editor at Aviation Week & Space Technology, a weekly magazine reporting on all things aerospace. I also spent one summer interning for former U.S. House of Representatives member (and staunch military supporter) Jack Kemp.
Between Kemp and my dad, I got quite the introduction to topics like precision munitions, sophisticated components, and high-speed chips designed for weapons systems. I even worked for my father in the 1980s covering breakthrough developments in Ronald Reagan's "Star Wars" program.
In short, I've had a lifelong interest in military technology and its impact on the roughly $870 billion a year we spend protecting our nation.
And now I’d like to share my interest with you…
More specifically, I want to examine a weapons system that's been around for decades.
This platform has been instrumental in Ukraine's defense against Russia. And it was originally built as part of Reagan's missile-defense strategy.
Granted, it wasn't built to blast intercontinental ballistic missiles out of the sky. But it was the first step in developing a weapon capable of taking down a supersonic missile — a bullet hitting a bullet, if you will.
Today's version is admittedly much different than the original creation. Let's take a closer look...
The system I'm referring to is one you might be familiar with. It's called the Patriot missile system. And it has three main parts:
The entire package was built by a consortium of leading defense contractors. And as technology has advanced, so has this system. In fact, it's played a life-saving role in the conflict happening overseas.
Last May, The Wall Street Journal reported that the Patriot's radar system detected incoming missiles launched more than 120 miles away. And its onboard computer not only tracked these missiles, but launched interceptors to destroy them before damage could be done.
The Patriot system costs about $1 billion to create and maintain. But as I noted above, it's extremely effective. The cost of saving just a few important buildings, or even a small town, and residents make the system a true bargain.
Notably, the system has gotten more complex over the years. Makes sense — after all, technology is always advancing. But the fundamentals of this system remain intact, an impressive feat for what's considered an "aging" piece of military hardware.
The thing is, there's a key business that's behind the Patriot system's continued importance that I've got my eye on.
Let me tell you about it...
RTX Corporation (NYSE: RTX) is one of the more intriguing companies I've come across. Not only was it a pioneer in developing radar systems during World War II, but it even invented the microwave oven — by accident!
You see, there wasn't a lot of shielding used in the first generation of radar technology. One day, a radar operator noticed that a chocolate bar in his pocket was melting while he was at his station.
It took about a decade to create a practical device from the discovery, but eventually, the microwave was born.
Fast forward to today, and RTX remains a leader in U.S. technology. And along with microwaves, it continues to be part of our everyday lives.
Every plane taking off uses RTX’s equipment. Nearly 90% of all U.S. space launches carry this equipment. And 70% of all airborne communications between the U.S. and its allies are supported by this company's technology.
Its engines power the cutting-edge F-35 fighter jet. And RTX recently landed a $625 million contract for radiation-hardened communications equipment in U.S. strategic bombers.
It even won a coveted NASA award for the work it's done on the James Webb Space Telescope.
These are impressive accolades. But the investment case gets even more enticing...
For several years, RTX has delivered steady earnings growth. It also pays a solid 2.5% dividend yield.
The important thing to remember is that defense and military technology isn't going out of business anytime soon. So the prospects for this company are encouraging for the long-term.
That makes RTX an ideal addition to any investor’s portfolio.
Cheers and Good Investing,
Chief Investment Officer
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