If you ever watched James Bond movies – there is a movie staring Pierce Brosnan as James Bond called Tomorrow Never Dies. In the opening scene James Bond jumps in a fighter jet and shoots up armaments before a missile reaches the site to do more damage as James leaves just in time. The opening is exciting and since the armaments are for countries fighting against the G7 as audience member you cheer for James Bond. However in the world of arms manufacturers, they have arms to sell and there was recently a conference in Europe.
In an article by John Irish and Lucien Libert of Reuters every year in Europe there is the Eurosatory arms bazaar where western governments go shopping. This year the bazaar was held in France and over 60 countries representing 1,700 exhibitors were represented. This year because of the war in Ukraine and Russia, the world’s second largest arms exporter or Russia decided not to come or were asked not to attend.
Arms manufacturers serve a need and where there is a need, demand follows which means the Ukraine – Russia war is good for business for the arms manufacturers. Several manufacturers told Reuters there is a shortage in capacity, notably in Europe what has depended on imports from the US. The shortage in capacity means the manufacturers are looking at backlogs until 2024-25.
The reason for the backlog is Ukraine’s armed forces are now using more ammunition in a day that Europe’s arms industry could produce in a month. From a supply point of view, the European defense industry is unfit for the warfare we see in the Ukraine. according to Elie Tenenbaum, director of the Security Studies Center at the Paris based Institute of International Relations.
Linking to dividend paying stocks, all of us have companies or industries we would prefer not to be a shareholder in for all types of reasons. However one of the analysis of any investment is to ask is the demand for the goods and services more than the supply. If the demand is high, every year prices can be raised and margins sustained which keeps the company profitable and can pay dividends. All companies do some good, but investing is individual decision and over time you will determine which companies you will invest in and which ones you will not even though there are profitable companies in all segments of the market.
There are more questions than answers, till the next time – to raising questions.