Foreign Policy Blunders Are Creating New Opportunities For Investors

Most political observers would agree that Barack Obama’s presidential election victory in 2008 was the product of an unprecedented alignment of factors, from his use of technology and social media, to the economy going into free fall under the Republican administration in autumn of that year.

While historians and political scientists will undoubtedly debate the specific drivers of Barack Obama’s 2008 election to the presidency for years to come, there are few experts who would disagree that, when it comes to foreign policy, Barack Obama’s administration has not been a resounding success.

The world has become far more unstable, uncertain and, in many ways, downright dangerous. We now face a Middle East multi-party conflict that started as a Syrian civil war and subsequently spiraled out of control and spilled over into bordering countries. This appalling instability was fueled in no small part by our rapid withdrawal from Iraq, and the resultant mobilization of the terrorist movement Islamic State, or ISIS, to fill the power vacuum in a spectacularly bloody way. Our haste to exit sowed the seeds for our return.

At the same time, a revanchist Russia led by a nationalist former KGB officer with a penchant for pushing the envelope at the least sign of weakness, has chosen to interpret American dovish policies towards Russia as a clear signal for becoming more aggressive with neighboring countries – Not just with nations that have historically formed a part of Russia’s sphere of influence, such as Ukraine, but with our European allies as well.

Simultaneously, China has scaled up in the growing arms race between the Middle Kingdom and America in Asia, sensing a clear signal from the Obama administration that our nation seeks to more forcefully contain China’s aspirations in the Pacific Rim, China is actively developing their military and taking a much more aggressive approach to their neighbors in the Pacific.

All of this could have been avoided with foreign policies that strike a more careful balance between prudence and the need to maintain greater geopolitical stability through American strength.

While the politicians can continue to argue about the state of the world today, there’s no question that Obama’s foreign policy blunders could generate a significant set of potential future opportunities for investment in military contractors.

The current geopolitical landscape very clearly suggests a significant uptick in U.S. military expenditures in the near future. While nobody relishes a rise of violence and global unrest, investors should always look for opportunities wherever they may be – especially in today’s volatile market environment – and the defense sector is no exception. The facts remain that we will actually create a more peaceful world by maintaining and enforcing our military dominance.

The following are four examples of companies that could benefit from a rapid uptick in defense spending at home and abroad:

• Lockheed Martin – They are one of the biggest military contractors in the world. They are making the most news with the advent of the must have F-35 fighter aircraft. This is the most advanced plane in the world and every modern military wants to get their hands on one. They just received a $4 bil order from the US government with many more orders to come. Lockheed also makes a host of bombs and missiles as well as mobile rocket launchers and vehicles. They are involved with many of the major weapons and electronic programs. Lockheed will be a major beneficiary of any increase in military spending

• General Dynamics – GD makes a host of vehicles and tanks which are very important as mobility and low tech warfare tend to dominate the current conflicts. They also supply different types of ammunition and gun systems. GD is in a particularly good space for the conflicts in the Middle East and Ukraine as they are focused on more traditional weapon systems for ground combat. They also own Gulfstream which gives them exposure in the highly lucrative corporate aircraft space, which is growing again with the economy and the demand for private flying.

• Northrop Grumman – If you want exposure to the high tech area of the military Northrop is the player. They make many of the electronic and navigation systems for planes and radars. Their focus on technology makes them a leader in high tech solutions for homeland security and the electronic systems within many different military programs. They are also involved with our space program and missile defense systems. This is the high tech play of the military defense contractors making their technology a direct beneficiary of the upgrades to the electronics and systems in many of our defense programs.

• Raytheon – This is a play on missile defense and cyber warfare. Raytheon is working on many programs that protect America from its scariest threats. Developing a good nuclear missile defense system as well as protecting against cyber-attacks lets us sleep better at night. Due to the fact North Korea and Iran are close to developing nuclear missiles that can reach America, Raytheon’s technology is crucial to our safety. With a nuclear power like Russia becoming an enemy, not an ally, this further protects us from their nuclear arsenal as well as the constant threat of cyber-attacks. Considering how much war has become cyber war, defending our systems from the hackers of China, Russia and Iran is crucial to our national security.

Sometimes the road to hell is paved with good intentions. President Obama swept into office six years ago, in part, because he promised to wind down United States-led entanglements in Iraq and Afghanistan, and mend fences with Russia and our European allies.

Unfortunately, our geopolitical challenges are in many ways worse than before, and they currently transcend multiple strategically vital areas of the world for the United States. With conflicts engulfing many areas of the world with increasing violence. There is no question that we must invest a larger share of our resources to the defense sector.

Ross Gerber is CEO and President of Santa Monica, Calif-based Gerber Kawasaki, an investment advisory with approximately $300 million in assets under advisement. Gerber Kawasaki clients and employees may own positions in various companies mentioned in the article, but readers shouldn't make any investments without consulting your advisor.