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America is running out of missiles.
More than six months of airstrikes against Iran have drawn down the military’s stock of long-range weapons and interceptors to the point where it reportedly limits what the President can authorize next.
Here’s the problem with fixing that. Raytheon currently builds about 60 Tomahawks a year.
Two weeks ago, the Navy signed a seven-year, $22.9 billion contract to get that number above 1,000.
That’s not a headline. That’s a seven-year procurement cycle with a signature on it, and it lands right as the U.S. and Iran exchange strikes for the first time since July and Trump threatens strategic oil hubs.
Which brings me to Direxion Daily Aerospace & Defense Bull 3X Shares (DFEN).
In general, DFEN is a leveraged asset that tracks three times (3x!) the daily performance of the Dow Jones U.S. Select Aerospace & Defense Index (DJSASD).
It’s an all-encompassing way to get yourself positioned in companies that benefit from defense budgets, procurement cycles, and geopolitical risk.
The underlying basket is dominated by U.S. defense and large commercial aerospace names. The top 5 holdings are listed below:
Top 5 Holdings (36.28% of Total Assets)
Leveraged assets are ETFs that reset daily using swaps and futures.
The daily reset means multi-day performance depends on the path the index takes between the start and end points, so they work best as short-horizon trading tools in trending markets.
Looking specifically at the defense/aerospace sector…
The benchmark defense sector has gained about 47% over the past year, while the DFEN has gained roughly 175%.
However, the 3x leverage cuts both ways, so it’s worthwhile to point out that the DFEN has dropped 13% over the last month.
As you can see below, the DFEN is now re-testing its June lows. I see this as a buying opportunity.
As noted above, 10% of the fund is made up of RTX Corporation (RTX).
And because we’re running low, Tomahawk missile production is now surging… and RTX makes Tomahawk missiles.
Like I mentioned above, RTX announced a seven-year, $22.9 billion contract to manufacture Tomahawk cruise missiles for the U.S. Navy, boosting Tomahawk production to about 1,000 per year (that’s up roughly 10-fold compared with recent levels).
According to Raytheon President Phil Jasper…
“Tomahawk is the Navy’s most important strike weapon, able to target hostile forces hundreds of miles away without ever risking the lives of our sailors. We are making significant investments in our workforce, technology, supply chain, and facilities to dramatically boost production capacity and meet surging demand.”
Combine the recent war escalation with surging missile demand, and the pullback on the DFEN seems like a great opportunity to move back into the best collection of defense/aerospace companies, all with 3x leverage.
While it’s true that Tomahawk cruise missiles use an older, rudimentary form of navigation during launches, AI is increasingly bludgeoning its way into the defense sector.
Where do you think the targeting system gets its information?
The innovations we’re seeing in drone warfare aren’t just amazing, they’re downright scary.
And while getting defensive is my plan for the short-term future, the biggest opportunities may exist in a wider window.
Matt McCall is an innovations expert, and he’s spent his career identifying the next trend waves before they happen.
Whether it’s defense, healthcare, technology, what-have-you, Matt knows where to look for the next generational shift.
Tomorrow at 2 p.m. EST, he’s joining Chris “CJ” Johnson for a special Monument Traders LIVE event to discuss exactly how to find the next group of long-term 10X – 20X winners.
It’s completely FREE to join. Add it to your calendar now.
