The Trump administration's National Defense Strategy focuses on military readiness against nation-states like China and Russia, a shift from the terrorism-based focus of the past.
On Friday, Feb. 9, Congress passed a budget deal that set 2018 military spending at $700 billion, an $80 billion increase from the previous year and the largest budget the Pentagon has ever seen. Next year, the military budget rises to $716 billion.
Analysts at RBC Equity Research, in a conference call with Bob Work, the former deputy secretary of defense, and Michèle Flournoy, former undersecretary of defense for policy, sought to figure out where the money the money for military strategy would flow in this new strategy.
One of the highlights of the new strategy is the focus on "Great Power" competition, the analysts said, which is where Russia and China come into play. Instead of focusing on guerrilla fighters in the Middle East, the U.S. is now focused on nuclear-armed nation states. Equipment that will not be able to survive against more advanced adversaries are losing their luster.
RBC identified four groups of winners from the talks: readiness, the nuclear triad, space exploration, and advanced capabilities.
The view is that the focus on the Middle East since the collapse of communism has left the U.S. unprepared for large-scale attacks from countries that can really hurt it. Equipment maintenance, munitions purchases and modernization spending have all suffered.
The recapitalization of the nuclear triad -- which consists of land-based intercontinental ballistic missiles, strategic bombers, and submarine-launched ballistic missiles -- is expected to cost $1.2 trillion over the next 30 years. This spending will directly benefit General Dynamics Corp. (GD - Get Report) , Northrup Grumman Corp. (NOC) and Boeing Co. (BA - Get Report) .
The U.S. wants to be able to fight, and win, in space as it becomes more accessible, which should be a boon for Northrop Grumman, Raytheon Co. (RTN - Get Report) , Lockheed Martin Corp. (LMT - Get Report) and Boeing.
Cybersecurity and electronic warfare will also be points of emphasis for the new strategy with Raytheon being the public company most likely to benefit from increased spending.