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3 Companies That Could Change the Defense Industry

Combat in this century certainly hasn't shaped up to be anything like that of the 20th. Massive ground wars involving hundreds of thousands of people have given way to sophisticated tactics for preventing terrorist attacks and cyber warfare. Bottom line: The defense industry of tomorrow will require less steel and more silicon.

With this idea in mind, some of the Motley Fool's best and brightest got together and put forth their premier ideas for investing in an increasingly dynamic and advanced industry. Everything was on the table, from laser beams to drone warfare.

Interested in investing in the future of the United States defense industry? Read on to learn about three companies that could change it forever.


Kratos Defense & Security (NASDAQ:KTOS) just might be the most innovative defense stock you've never heard of. With less than $800 million in annual sales, and a market capitalization below $300 million, Kratos is a "small-cap" defense company in a large-cap world, but it's got big ambitions.

Kratos, as you may have heard, was the company tasked with building the U.S. Navy's Laser Weapon System, which made headlines when it was tested in live-fire drills in the Persian Gulf last year. Based on the results of those tests, it almost immediately was classified as an operational weapons system.

Laser cannons, capable of shooting down everything from small drone aircraft to full-fledged fighter jets to cruise missiles at a cost of less than "$1 a shot," have been called the future of the U.S. military. As one of the first defense companies to get a working laser cannon up and running, Kratos is already taking a leading role in building the military of tomorrow.

And that's not all. For the past few years, Kratos has been hard at work on a deeply hush-hush project to build a jet-powered combat drone of its own, one capable of flying at near-mach speeds, carrying weapons, and potentially taking on manned fighter jets in aerial combat. Once operational, it will be one of only a handful of pilotless jets capable of taking on such tasks.

Granted, valuation-wise, Kratos' prospects remain iffy. While technically "profitable" from a GAAP standpoint, the company hasn't generated positive free cash flow in more than two years, and it's deeply in debt -- to the tune of more than $400 million net debt. Substantial sales of its new whiz-bang...


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