Matthew Tuttle
CEO & CIO of Tuttle Capital Management, Publisher of Daily H.E.A.T.
Rheinmetall is still priced by US investors as a one-off, when the EU sovereignty trade is industrial policy that will repeat across Europe. Per Bloomberg, Germany's largest defense company and its biggest mobile carrier plan to jointly build a shield against drones and sabotage to protect critical infrastructure. A defense prime fusing with a national telco into a sovereign counter-drone stack is a template likely to be copied in France, Italy and the Nordics. x.com
Rheinmetall's growth isn't limited to European defense: Kuwait is buying its MASS decoy launchers for the first time, a Middle East order. x.com
Rheinmetall's chart shows the trend is in place. x.com
Rheinmetall does not deserve a P/E of 100, since no German company ever does. Its shares fell sharply after reports Germany may cancel the F126 frigate program, on which Rheinmetall was expected to be lead contractor, raising questions about its naval expansion, per @wallstengine. x.com
Non-ITAR defense suppliers such as Electro Optic Systems, BAE Systems, Theon and Rheinmetall are an overlooked source of alpha as Europe, Asia and the Middle East shift defense spending away from US ITAR-controlled equipment. That shift comes with huge spending, yet US-based investors misunderstand it and wrongly call defense tech dead. Eurosatory confirmed the view, and the big alpha is not in drone builders. x.com x.com x.com
Rocket Lab's rising Electron output and cost competitiveness could unlock a big European opportunity. COO Frank Klein says next year's production will exceed twice 2024's 15 rockets and argues buyers would not pay two or three times as much merely for a German-built rocket. He says Rocket Lab is discussing launch capacity with Germany and ESA, while Germany plans $41.1 billion in defense-space spending over five years. 2027 looks like a huge year for Rocket Lab. x.com
Rheinmetall may have become a value trap. Its CEO tries everything to lift the stock and analysts keep raising price targets, yet shares still don't move and trade below the level of its big capital markets day, a question Bernstein's shift in framing also raises. x.com
Theon International is a European defense company with excellent management, executing a roll-up strategy with huge tailwinds from European defense spending. Focused on night vision, it just bought a counter-drone company. Fundamentals improved in the latest quarter, yet the stock is down big on broad defense-market bearishness and sits within 10% of its trailing lows. x.com
Lockheed Martin is a strong geopolitical diversifier alongside the energy complex for investors heavily long semiconductors. It landed a Pentagon deal for 850 F-35 jets and raised its annual forecast; the multi-model signal has been long since October 16. x.com
Electro Optic Systems, nLIGHT and LightPath are defense stocks to own as forward multiples may compress with no high-profile conflicts in sight. US and European rearmament is unchanged and earnings should grow solidly for two to three years, but upside may take patience. Well-managed, profitable firms with backlog growth in the fastest-growing niches should hold up better than cash-burning drone makers. EOS's UAE joint venture, laser contract and $124 million RWS contract add optionality. x.com
BAE Systems is a straightforward buy because the new era of defense spending is geopolitical, not cyclical, as NATO and allies rearm for a decade and Europe can no longer count on US protection. Long-cycle contracts and a record £80bn-plus backlog give visible revenue, sales grow steadily at 8-10%, and dividends rise about 8% a year. Its cyber, electronic and next-gen air systems have proven vital, and government-backed demand protects margins. It is no longer cheap, but quality rarely is. x.com