It’s a “badass” plane…
The F-35 can fly at speeds of up to Mach 1.6 (about 1,227 miles per hour).
In simulations, this newest fighter can outclass any other craft, even in battles as lopsided as 20 opponents to a single aircraft.
It uses stealth technology to avoid radar and thermal detection… It can conduct air-to-air battles with a gun and missiles… And it can run precision bombing missions.
In fact, if Tom Cruise’s character Maverick flew an F-35 instead of an F-16 in the movie Top Gun 2 to destroy a uranium enrichment plant… he wouldn’t have faced any danger from the Soviet defense sites… and the end credits could’ve rolled half an hour earlier.
Why? The F-35 would’ve obliterated any target in the movie before an enemy radar even detected it.
That’s why Popular Mechanics calls the F-35 the most “badass” fighter jet in the world.
F35A Lightning II: Source: U.S. Department of Defense
But here’s the thing…
The F-35 isn’t only a “badass” plane… It’s also a “badass” investment.
Let me explain…
In 1995, the U.S. military sent out a $2 billion bid for the Joint Strike Fighter – a state-of-the-art plane that could fill various roles across the armed services.
The winner of the bid: Lockheed Martin.
By 2017, the estimated price tag for the F-35 had risen to $406.5 billion. Maintenance and operations will add another $1.1 trillion to the cost over the aircraft’s lifespan.
Much of that money will go to Lockheed Martin between now and 2070 – nearly 50 years from now.
The incredible thing about this plane is that Wall Street completely missed the investment story…
Guaranteed Payments… Often for Decades
It all comes down to what contractors call a “backlog.”
That’s when a company gets a contract… but may not receive any immediate upfront payment for it.
In many cases, contractors will get a down payment to start the project… additional monies when the project is underway… and the final payment when the project is complete.
The market knows the company will likely receive millions – if not billions – in guaranteed future income.
It sounds exactly like the kind of recurring revenue Wall Street firms like to see from other industries, like streaming companies charging customers a monthly fee.
But because government contracts are often for large-scale projects like highways and energy grids, and paid in stages over years or decades, the revenue isn’t realized immediately… So Wall Street treats them differently.
That makes a backlog different from recurring revenue. The exact timing of payments is uncertain. And companies will have “lumpy” quarterly earnings – some quarters with fat profits and others thin.
A backlog can be a powerful way to drive returns. Consider Lockheed Martin…
It now has a backlog of government contracts across 20 federal agencies in the U.S. alone.
The contracts far exceed Lockheed’s market cap and represent years of future revenue it hasn’t booked yet. The F-35 is just one of the more prominent examples of one of its government contracts.
But all of that said, I wouldn’t recommend buying Lockheed… the company is well-established and has grown to the point where its biggest growth is behind it.
There are better places to put your money to work…
Several companies benefit from government largesse, including those outside the defense sector. And a recent increase in government spending means many of those companies will see an influx of cash in the year ahead…
$1.6 Trillion of Fed Spending Is Coming to Market
In the past two years, the government has allocated trillions of dollars to private and public companies “reshoring” their operations.
Reshoring is when a company returns production and manufacturing to its home country – a sort of reverse globalization.
The trend started in 2020 when it became apparent that global “just-in-time” supply chains only needed one minor snarl to create months of delays and shortages.
And while we’re now in the fourth year of this reshoring process, the numbers show this long-term trend is ramping up…
According to consulting firm Deloitte, 62% of manufacturers with revenues between $500 million and $50 billion are reshoring their production facilities.
That’s about 200 of the biggest U.S. industrial players.
Why the big move? Besides the benefits of a more robust supply chain, these companies are all looking for a piece of roughly $1.6 trillion in government spending…
And it’s all coming from four federal laws enacted over the past two years. They are:
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The Investments and Infrastructure Act (IIJA). This allocates $1.2 trillion to build U.S. infrastructure for a new generation of industrial facilities over the next several years.
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CHIPS and Science Act. This $52.7 billion bill is hyper-focused on ensuring America reclaims its lead in semiconductor chip design.
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Inflation Reduction Act (IRA). This bill provides $250 billion for clean energy technologies and new, state-of-the-art factories for building them.
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COMPETEs/United States Innovation and Competition Act (USICA): This is a $51.5 billion grab bag of government spending, with funds going toward increasing U.S. production and reducing supply chain vulnerabilities.
That’s about $1.6 trillion in combined federal spending.
It’s important to note that many government spending programs have strings attached. The government allocates the funds for specific purposes. So it might not spend all of the $1.6 trillion in the end.
But overall, several infrastructure companies will see the first payments from these spending bills this year.
That means it’s still early in this trade. And when you buy ahead of the crowd, you find incredible discounts that lead to higher returns…
Put A $1.6 Trillion Bonanza Into Your Portfolio
One way to take advantage of this trend is the Global X U.S. Infrastructure Development ETF (PAVE).
The fund has a 70% allocation to industrial stocks, 21% to basic materials, and the remaining 9% between technology and utilities. It also yields 0.84%.
Best of all, this ETF has a stake in our favorite specific investment for this infrastructure spending theme, which could return as much as 312%. (Palm Beach Letter subscribers can read the details in our latest issue right here.)
Bottom line: A lot of money will flow to reshore America’s infrastructure over the next few years… Allocating capital before the biggest parts of that funding get spent could lead to market-beating returns.
Regards,
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Andrew Packer
Analyst, Palm Beach Daily