North Korean Threats? Buy Raytheon

05/22/2017 2:50 am EST

Focus: STRATEGIES

Jim Powell

Principal Analyst, Global Changes & Opportunities

The most important international development this month continues to be the threat of war between Washington and the regime in North Korea, cautions Jim Powell, geopolitical expert and editor of Global Changes & Opportunities.

Because the biggest threat from North Korea is nuclear-tipped ballistic missiles that may soon be able to reach the US, the most likely military action by the Trump administration will be to destroy the country’s offensive capabilities. The strike would probably be done with Tomahawk cruise missiles, as Washington just did in Syria.

Unlike the attack in Syria, however, North Korea will have the ability to strike back – especially against South Korea. This could end very badly. Hang onto your defense stocks.

At the same time, I expect there will be a strong call for another multi-billion dollar upgrade to America’s ballistic missile defense shield. The current system has never been adequate to the challenge.

I believe the company that will benefit the most from rising tensions with North Korea — and with threats from other flash points — is Raytheon (RTN).

The company makes the highly-accurate Tomahawk missiles, the Patriot missile defense system, an “Exoatmospheric” kill vehicle that defeats warheads while they are still in space, and many others.

Raytheon also makes critical electronic guidance and control systems for many weapons produced by other defense contractors.

In addition, the company produces what most military analysts consider to be the best long-range radars used by the US and its allies throughout the world.

Raytheon is already up in price. But that’s been the case for many years. The stock has never failed to go even higher, and is likely to do so once again.

I wish it were otherwise, but given the political tensions in this old world, I think the defense industry will have many more years of solid growth.

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