"As soon as I take office, I will ask Congress to fully eliminate the defense sequester and will submit a new budget that will rebuild our military,” President-elect Donald Trump said recently.
In the video above, Hedgeye Potomac Defense Policy analyst LtGen "Emo" Gardner USMC Ret. digs into the winners and losers of a Defense budget outlook under Trump. Gardner lays out the likely scenario below:
- Fiscal Year 2017: Extended Continuing Resolution delays new starts, production increases and multiyear contracts until Apr 28. Expect ~$15B for additional investment spending when final bill passes.
- Fiscal Year 2018: Increases in readiness and “shovel-ready” will be quick win investments; Focus will be on fulfilling promises: larger force structure, more maintenance spending and increases to in-production weapons, vehicles, and aircraft with priority to visible wins.
- Long-Term Opportunity: shipbuilding, more expensive force; Trump must sell affordability: President-elect has never been afraid to take on debt and deficits will increase along with interest rates.
Gardner thinks a big, long-term beneficiary of the Defense budget outlook under Trump are shipbuilders, such as General Dynamics Corporation (GD) and Huntington Ingalls Industries (HII). As you can see in the chart below, the U.S. Navy is retiring more ships than it is adding and would fall below required minimums in the ensuing years.
Click here to watch the full video “Here Comes Trump: Our Top Five Investing Themes.”
