5 Ammo Stocks Feeding Uncle Sam’s Uzi

In an interview with CNN earlier this week, President Joe Biden made a troubling (if obvious) admission…

We’re running low on ammo. 

“This is a war relating to munitions,” he said referring to Ukraine. “And they’re running out of that ammunition, and we’re low on it.”

Specifically, there’s a shortage of 155 mm artillery shells. 

To date, the U.S. has provided Ukraine with over 2 million 155 mm artillery rounds. But Ukraine is expending anywhere from 4,000–7,000 artillery shells each day. 

Crunch the numbers on that and it comes out to roughly 500 days' worth of ammunition at best, and this war is 512 days old.

Javelin anti-tank munitions are another hot commodity.

Lockheed Martin, the company that makes them, can only produce 2,100 per year. Yet Ukraine has burned through them at a rate of 500 per day.

The same goes for Stinger anti-aircraft missiles and precision-guided rockets, which are also being deployed faster than they can be built.

Predictably, our allies in Europe are facing similar shortfalls.

“Our weapons and ammunition stocks are depleted and need to be replenished, not just in Germany, but in many countries across NATO,” NATO Secretary General Jens Stoltenberg said in June.

With that in mind, the EU is on the verge of passing what it calls the “ASAP” (Act in Support of Ammunition Production) bill, which will pay out 500 million euros in subsidies to stimulate the production of artillery shells and missiles.

Meanwhile, back here at home, the Army aims to boost production of 155 mm artillery rounds to 20,000 per month in 2022 and 85,000 per month by FY 2028.

Obviously, this is a clear opportunity for investors.

Lockheed Martin (NYSE: LMT) and RTX (NYSE: RTX) just signed a $13.5 million contract to produce more Javelins for the Army. RTX makes the Stinger, as well.

And Aerojet Rocketdyne (NYSE: AJRD), which is in the process of being acquired by L3Harris (NYSE: LHX), makes the rocket engines for both. 

Most of the Army’s artillery shells come from the Iowa Army Ammunition Plant in Des Moines County, Iowa. 

That facility is operated by a private company. However, General Dynamics (NYSE: GD) also makes 155 mm artillery shells, as well as key propellant and propulsion chemicals like ball powder propellants and artillery propelling charges.

It also makes a wide variety of other munitions like 61 mm, 81 mm, and 120 mm mortar applications and small-, medium-, and large-caliber ammunition (ranging from .50 caliber rounds to 120 mm tank shells).

A lot of investors might think they’re late to the party on stocks like these, which have run up considerably since Russia invaded Ukraine last year. They’re also larger companies which often deliver more mild returns over a long period of time. 

But that’s not really the case. 

The fact is, a lot of defense and aerospace companies have been held back by supply chain disruptions and labor shortages. That’s delayed delivery on a lot of key items and held share prices largely in check. 

Furthermore, the massive defense budget increases we’ve seen around the globe haven’t been fully priced in or yet translated to bottom line boons.

Of course, they’re starting too.

Just this week, Lockheed Martin posted second-quarter net income of $6.63 per share, topping Wall Street estimates of $6.45. 

The company also raised its profit outlook for the year to between $27.00 and $27.20 per share, up from its previous guidance of $26.60–$26.90 per share.

And Lockheed now expects full-year net sales to be between $66.25 billion and $66.75 billion, up from its earlier forecast of $65 billion–$66 billion.

Of course, there are some smaller defense firms with even higher ceilings, and I cover those in detail at Secret Stock Files — an investment newsletter that focuses on military technology with mainstream applications. 

We’ve had a lot of success with those companies this year, locking in double- and triple-digit gains on some high-flying AI plays.

You can find out more about that here if you really want to profit from the global defense build-out and clandestine military tech.

Fight on,

Jason Simpkins

@OCSimpkins on Twitter

Jason Simpkins is Assistant Managing Editor of the Outsider Club and Investment Director of Wall Street's Proving Ground, a financial advisory focused on security companies and defense contractors. For more on Jason, check out his editor's page. 

Want to hear more from Jason? Sign up to receive emails directly from him ranging from market commentaries to opportunities that he has his eye on. 

*Follow Outsider Club on Facebook and Twitter.