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☕Buy defense stocks, peace is the most important issue of our time

Jan 29, 2024

Good morning! 👋  

The markets are mixed in early going as traders await the Fed’s next round of follies and big tech earnings. It’s tempting to hunker down but that’s a mistake. 

Chaos always creates opportunity.  

The real question is how you will address it. 

Remember how the game is played... any fear you’re feeling is a catalyst for growth, knowledge and yes, profit potential. 

Here’s my playbook. 

1 – Why aren’t defense stocks moving? 

The Middle East continues to accelerate but defense stocks aren’t. 

What gives? 

I get asked that a lot and there are three reasons: 

  1. The public thinks defense stocks are boring, which is why they’d rather buy commercial airline stocks, tech, and bling because they like to travel. The better, more consistent and – dare I say it – sustainable path to profits over time is to buy the defense stocks that help make our world a safer place so that they can travel. The public rarely buys when they should. 
  2. Covid supply chain challenges and inflation really messed up defense stocks which were caught by JIT – just in time delivery problems – when what they should have been doing is focusing on what I call JIC production – just in case. So, we’re seeing revenues flatten but profitability rise by 3-5% and that’s just not as sexy as tech companies growing at 45%-60% a year. 
  3. Defense is a long-cycle opportunity at a time when many investors have the attention span of a gnat. Not surprisingly, they can’t be bothered to wait around for a few quarters even though there’s a good case to be made that’s exactly what they should be doing if they're serious about profits. 

Here’s my take with the fabulous Stuart Varney this morning on FBN. (Watch) 

2 – Not all big tech is the same – pick your bets carefully 

1/5th of the S&P 500 will report this week including many of the big tech names we talk about frequently. 

Apple and Microsoft are at the very top of the heap because of the ecosphere and AI respectively. Amazon, on the other hand, is challenging imho which is why I won’t own it. 

MyPOV: People have their favourite stocks and that’s awesome – just be dang certain you understand what you own and why. There’s plenty of pie on the table. 

3 – What will JPow do 

Investors expect the Fed to keep rates steady, but I still think there’s an outside chance Team Powell will hike rates or offer some sort of cautionary commentary that roils markets. 

The data continue to suggest – as I told you would be the case months ago – that the economy is stronger and growing faster than the apparatchiks understand. 

Trade Idea: If you're a trader, buying ATM putskies could work nicely through the Fed meeting but tread lightly. Volatility is up already which means they’re expensive. This is also a rare instance where one of the triple-leveraged inverse funds tracking the SPX or Nasdaq could work nicely if held through the Fed’s speech and dumped – win, lose or draw – immediately afterward; 48-hour hold max! 

Investors should simply stick to the plan.  

OBAers: I will have some more on this topic later today along with specific recommendations you may find helpful, particularly with regard to hedging. (Upgrade to Paid) 

4 – Boeing’s nightmare isn’t over by a long shot 

I suggested a while back that buying Airbus and shorting or avoiding Boeing could be a good idea. 

Looks like I was on to something. 

Boeing’s stock has dropped –21.57% over the past month while Airbus has tacked on 4.22%. 

This situation isn’t going to get better any time soon. 

Reports broke over the weekend that United’s CEO Scott Kirby flew to Toulouse to inquire about buying Airbus A321neos to replace the Boeing 737s he can’t get because of delays. (Read) 

This is like FedEx suddenly painting their trucks brown. 

United is historically a Boeing-centric fleet. 

Let that sink in. 

Now imagine what the Chinese are gonna do with that information. 

Hint... field a competitive long-haul aircraft for the international market within 5 years. 

Boeing is in deep you know what for a while yet. 

5 – MSFT hasn’t split in 20 years but... 

Many investors insist on buying small stocks because they think they’ll make a killing when they’re discovered. That used to be true but not these days. 

The real money is in buying big companies with the size, scope, and scale to grow in today’s complicated markets. 

MSFT hit $1T in late 2019. 

Five short years later, it’s a card-carrying member of the $3T club. 

MSFT is on track for $500 a share, a target I set on national TV a while back and people found impossibly high. Some laughed openly in my face which, honestly, doesn’t feel great. 

No matter. 

I also said that I believed management would split the stock within 12-24 months. 

Game on. 

MyPOV: People grouse about stocks being expensive and then hesitate to buy ‘em only to look back with more than a little regret a few years on. I understand – but encourage you to remember that stocks are constantly making new highs... that’s how the markets work. In fact, my research shows that the S&P 500 has spent 83% of the time at or within 10% of new highs since 1927. 

Bottom Line  

The most successful investors trade big well-known names, not POS stocks you've never heard of.  

Let that sink in. 

Now and as always, let’s MAKE it a great day. 

You got this and I am with you every step of the way. 

Keith 😊 

Straight to your inbox from Keith himself!

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