Space and Missile Merger

06/19/2014 8:00 am EST


Jim Powell

Principal Analyst, Global Changes & Opportunities

Two of our recommended defense stocks have just announced their intention to merge and become a major supplier of satellites, space systems, and missile technologies, reports Jim Powell, editor of Global Changes & Opportunities Report.

Alliant Techsystems (ATK) and Orbital Sciences (ORB) will merge to create the new business—to be called Orbital ATK.

This is a logical move for both companies that have been working on joint projects for several years. The timing of the deal could not be better for investors.

In response to US sanctions on Russia following the annexation of Crimea, Mr. Putin decided to stop exporting the efficient rocket engines that have been powering America's most sensitive military launches for several years.

The cutoff may hurt Orbital Sciences, which uses Russian engines in its light and medium lifters, including the company's cargo shuttles to the International Space Station.

ORB is working on a replacement engine, but it won't be ready for at least three years. Meanwhile, the company has enough Russian engines to fulfill its obligations.

Because of the Russian cutoff, ATK and ORB stocks have been pushed down, giving us the best opportunity in many months to buy them at attractive prices.

If the disagreement with Russia over the Ukraine gets settled fairly soon, investors could see a quick return on their money. If not, an even larger payoff should come longer-term.

In the broader sense, I think Washington and the US defense industry learned a valuable lesson from giving Russia a kill switch on what little is left of America's space program.

I expect to see a new resolve to become self-reliant again that should result in billions of dollars in additional orders for US suppliers—especially for rocket and satellite companies. If you want to add long-term growth to your portfolio, you need to look no further than the aerospace and defense industry.

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