With the government shutdown now over, the border wall project is officially shelved — at least for now. The government is only funded until February 15. That’s when the Trump Administration and members of Congress will battle it out again for funding of the border security wall. Although, Trump has pledged to build the wall even if he has to circumvent Congress. In the end, the wall — and it’s estimated total cost of $8 billion to $70 billion — is sure to be a hot button topic over the next weeks.
Over the course of the debate about funding the project, the border wall has evolved beyond just a concrete slab across the U.S./Mexico border. In fact, proposals by both Democrats and Republicans have turned the project into more than just a physical barrier. The reality is, a massive Great-Wall-of-China-styled installation won’t be built. But we will likely get some sort of border security package.
All in all, securing the border could be a blend of both low-tech and high-tech solutions. For investors, that could lead to plenty of opportunities. And the real opportunities may exist outside just concrete and steel manufacturers.
With that, here are five stocks to buy for Trump’s Wall and increased border security.
Stocks to Buy for Trump’s Wall: AeroVironment (AVAV)
The total border between Mexico and U.S. is “just” 2,000 miles long. A lot of that border is through uninhabited and rough terrain — which is one of the main criticisms of the wall in the first place. If you’re not going to build a physical barrier, it takes a lot of eyes and ears to see intruders. This is where AeroVironment (NASDAQ:AVAV) comes in.
AVAV makes unmanned aircraft, more commonly known as drones. Some of AeroVironment’s drones are designed to go “boom” and take-out enemy targets. However, the vast bulk of them are used for long distance surveillance. That makes them perfect for patrolling the skies above the border and where a wall would go. Already the U.S. military buys a lot of drones. But that number is set to skyrocket — jumping 20% for fiscal 2019 and hitting $8.9 billion. According to analysts at William Blair, drone spending by the Fed’s has the ability to increase by about 15% annually over the next five years as border security and other military applications rise.
That’ll be great news for AVAV’s bottom line.
Already, AeroVironment has seen some impressive revenues gains. For example, last quarter the firm saw a 20% jump in sales of unmanned drones. While profits have been spotty over the years — thanks to high R&D costs — the firm’s losses are lessening. Whatever form the border wall takes, should help boost AVAV’s fortunes and get it over the profitability hump.
Stocks to Buy for Trump’s Wall: FLIR Systems, Inc. (FLIR)
Being able to see in all conditions and at night, is a keep item when it comes to security. So, no matter what the border wall or security package looks like, imaging — especially thermal imaging — will be a key component.
That’s why FLIR Systems (NASDAQ:FLIR) could be a huge buy.
FLIR is the leading producer of thermal imaging cameras, apparatuses and imaging sensors. This includes a hefty dose of commercial cameras and applications. Think like a handyman checking for hot/cold spots when it comes to insulating a home. But FLIR also makes plenty of military-grade thermal imaging cameras and imaging systems. Increasingly more of its revenues — around 30% of its total — are coming from these sources.
And surprise, surprise, a big chunk of that comes from border-security operations. FLIR products can already be found in use along the U.S./Mexico border and have been proven to be successful in a variety of operations. As the border wall or whatever is unveiled, there’s a good chance that FLIR will continue to get the nod from the Pentagon.
Analysts expect FLIR earnings to grow around 13.44% this year. But recent contract wins and the potential for a border security package, the stock could see better than expected results.
For investors, FLIR may be one of the best choices out there for playing the increase in border security.
Source: NAVFAC via Flickr
Stocks to Buy for Trump’s Wall: Tetra Tech (TTEK)
Tetra Tech (NASDAQ:TTEK) isn’t exactly a household name. And most of the time, when investors think of it, it’s mostly because of water. The firm is a leading design/construction company with regards to wastewater, water treatment and restoration projects. However, investors looking at the potential of a border wall or increased security may want to get to know Tetra. That’s because the firm has already done the job before.
Under the Bush Administration and through the U.S. Army Corps of Engineers, Tetra was one of four companies awarded a piece of a $460 million contract to construct a wall/fence along the U.S./Mexico border. Under the contract, TTEK built sections of the border fence near El Paso, San Diego, Santa Teresa, and Tucson. So, the firm has already had a history of doing the work.
More importantly, it still counts a variety of U.S. government and military agencies as key clients. That includes some pretty important contracts. For example, TTEK has been the National Nuclear Security Administration’s (NNSA) go to partner for designing security solutions around the illicit trafficking of nuclear and other radioactive material.
With its history of actually doing work on the current border wall as well as other key operations, TTEK has a good shot of getting a piece of what new contract is drafted.
Stocks to Buy for Trump’s Wall: Elbit Systems (ESLT)
One of the main comparisons to the U.S./Mexico border wall is to the one in Israel that separates the country from Palestine. To that end, Israeli defense contractors have gotten a lot of contracts here in the U.S. This includes Elbit Systems (NASDAQ:ESLT).
ESLT is Israel’s largest defense contractor and produces a variety of military hardware. Where it shines, however, is in a variety of surveillance and sensing equipment. Elbit Systems was involved in the West Bank wall and outfitted it full of “intrusion detection systems.” The expertise allowed the firm to be tapped by the U.S. Department of Homeland back in 2014 for a $143 million contract to erect a virtual detection system at the U.S./Mexico border. The firm is scheduled to construct 52 towers along the border in Arizona, full of radar, cameras and other sensors.
If Trump’s border wall is more virtual in nature, Elbit could continue to rack up wins for its work. And even if it’s not, the firm’s expertise in providing surveillance makes it a top candidate for whatever happens along the border.
At a forward P/E of 18, ESLT stock isn’t super cheap. But there is still plenty of growth behind the stock aside from the border wall.
Stocks to Buy for Trump’s Wall: iShares US Aerospace & Defense ETF (ITA)
Perhaps the best way to play the border wall in any form is a bit more tried and true. We’re talking about the iShares US Aerospace & Defense ETF (NYSE:ITA). With it, investors basically have all the angles covered as well as rising overall military/defense spending.
The ETF tracks the Dow Jones U.S. Select Aerospace & Defense Index, which is made up of all the defense stocks in the U.S. This includes leaders like Lockheed Martin (NYSE:LMT). The beauty lies within the ETF’s other 37 holdings. ITA holds plenty of smaller and mid-sized defense contractors and hardware producers such as Harris Corporation (NYSE:HRS). Who, by the way, makes all sorts of surveillance equipment.
Mid-sized defense contractors offer plenty of growth potential as smaller contracts can still really move the needle. As we’ve seen in examples above already, many border wall or security contracts haven’t been for billions of dollars.
With ITA, investors can be ready for whatever shape the border wall takes. In the end, the ETF provides plenty of exposure with one ticker. With expenses running at just 0.43% and a ten-year average return of 16.85%, ITA is a major buy.
Disclosure: As of the time of writing, Aaron Levitt did not hold a position in any of the stocks mentioned.
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