WAR… what is it good for?

Henry Jennings | Marcus Today 

WAR… what is it good for? Well, the markets it seems.

The recent events in the Middle East — the so-called 12-day war — together with the NATO meeting, have shown that Trump can not only do deals, but when backed by the might of the USA, can force others into a new paradigm. The NATO members have all (bar Spain, which thinks it’s special) committed to a 5% spend on defence by 2035. Fair to say, that’s never going to happen. Much like Net Zero. And there’s a fair bit of “fudge” in that 5% too: 3.5% on actual weapons and kit, and 1.5% allowed to be counted if it’s infrastructure that supports defence.

Funny how we are years into the Russian invasion of Ukraine and the EU and NATO have only now been shaken into action. The new German Chancellor has been the catalyst for defence spending. I’m sure someone, somewhere, wrote that line before — but I digress. It’s about time. Angela Merkel dragged her heels on German defence spending. Merz clearly doesn’t have the same qualms.

A long-overdue move, and it shows that Europe — whatever they say and however much they suck up to ‘Daddy’ — do not trust the US to come to their rescue. It will depend.

The sector has been a big winner since Mertz was elected in early May.
There are a number of new ETFs that have been stellar performers. Forget Nasdaq or the FANGs — this is where the money has been made.

Source: Marcus Today

Australia? Woefully underprepared for 21st-century warfare.

Things have changed. It’s all about drone warfare these days. Huge advances in cheap, easy-to-make weapons of destruction. And hard to stop. The biggest signal for me that the world had changed was the daring Ukrainian raid on long range bombers deep inside Mother Russia.

Enter two stocks that are benefitting from the drone age.

Droneshield (DRO) is an obvious one — does what it says on the tin. 

Source: Marcus Today

It’s been a volatile ride, to say the least. Last July it was capped at $2.5bn with limited revenue. The thought was there, but not the money. It’s had its Jerry Maguire moment this year — and now the money is flowing. Just recently, it snagged a $61.6m order from an unnamed European country. There are plenty of unnamed European countries that’ll jump on the bandwagon.

DRO has 300 engineers, and like cybercrime and hackers, as quickly as the tech is rolled out, someone in a dingy bunker in Russia will come up with a hack. It’s an arms race. Russia is now trying to develop unjammable drones. Challenge accepted.

These counter-drone measures are needed elsewhere too — not just military but civil targets: infrastructure, events, buildings. DRO has been at the forefront of counter-drone technology and looks set to continue that. Orders are flowing, and the stock price looks likely to keep pushing higher.

Once you’ve got a swarm of drones — how do you control them?

Think of those VIVID light shows in the sky (not this year — shame, NSW). They all need to be synchronised. Enter Elsight (ELS). 

Source: Marcus Today

This company supplies AI-based multi-link bonding to provide robust connectivity for drones and other unmanned systems. Sounds impressive — and the money is starting to flow.
Revenue is still small but doubled in 2024. Market cap is just $274m. DRO is $2.1bn. There’s a runway there. It will take time — but it shows promise.

There are other defence stocks worth considering too. ASB, for its shipbuilding, is currently slipping back as AUKUS seems less certain. But lurking in the background is Hanwha. If Trump and his administration can ever be bothered to confirm their support for AUKUS, then this one probably won’t last long without a new bid.
I suspect DRO may also attract some unwanted glances from the big boys. Some large US defence companies lack the tech DRO has — and with the AUD at 65c, I wouldn’t rule out an approach.

You could look outside the box and consider Codan (CDA) — military communications and metal detectors.

There is also IperionX. Early days, but again a foot in the door with the US for a titanium order potentially worth up to US$99m. So far, only US$1.3m has been signed — but more to come. It’s volatile, but it has domestic US manufacturing.
The titanium market is experiencing growth, projected to increase from US$27.23bn in 2024 to US$28.68bn in 2025, driven by aerospace advancements, military applications, and industrial expansion.

Then there’s the minnow ArchTis (AR9). Rallied hard recently as it has prised the door open to the US DoD and the UK. Market cap of $54m. Highly speculative and a long way to go — but the door is open. Now it just has to step through and land much bigger orders. It provides secure communication through Microsoft platforms and others.

You could go with the ETF suite — ARMR, DTEC, or DFND. All good codes. Important to ensure the components in the ETFs are stocks you want exposure to.

The Ukraine war has been a sobering experience for Europe — and Trump has just rammed home the point. Russia is the risk. Buy American arms!
Churchill was right: Russia is a riddle wrapped in a mystery inside an enigma.

At least with China, you know that commercial ambitions overrule military ones — for now. It’s a battle for AI supremacy.
Have you missed the boat (or drone)? This is a long-term theme. Rome wasn’t armed in a day.

The boat has not sailed. In fact, the boat isn’t even built yet. When it is, let’s hope it’s built by ASB, armed with DRO countermeasures, run on ELS platforms, and made of IPX titanium!

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