When we think of the more than $700 billion we spend on defense each year, we tend to focus on big-ticket items like fighter jets and battleships.

But all those major weapons systems rely on a very lucrative sector that gets scant attention.

These embedded systems remain largely out of sight, as the term implies – but make no mistake. They form a vital part of the Pentagon’s capabilities.

They’re the components that lie inside the guts of thousands of platforms throughout the entire defense industry.

Global demand is expected to reach $161 billion by 2026 with a compounded annual growth rate of 8.6% into the next decade, according to Research and Markets.

At that rate, the market will double again by 2035 when it will be worth $322 billion.

Let me show you a storied defense firm that stands to profit handsomely from this growth trend…

A Valued Supplier for the Defense Industry

As the war in Ukraine continues, U.S. and allied support mean lower inventory of parts and equipment at home.

In turn, that means a growing demand for embedded systems to replace all the materials we’re sending abroad, some of which will no doubt be heavily damaged or destroyed.

Let’s clear up one thing right off the bat. Some of you may think investing in a parts supplier isn’t as sexy as buying stock in a firm that makes, say, an F-35 or battleship.

But the reality is, those big items are composed of parts that actually make the final product valuable, reliable, effective, and safe.

Simply stated, embedded systems are discreet components that include microprocessors, microcontrollers, and software. They perform precise functions like temperature or speed control.

Crappy switches or valves can kill people, destroy wildly expensive equipment, and could lead to battlefield losses. In other words, the Pentagon takes parts suppliers very seriously.

And once you can establish a reputation for quality and dependability, you can become a valued supplier to the world’s largest military – and all its allies as well.

A Leader from the Start

That’s exactly the position Curtiss-Wright Corp. (CW) finds itself in today. This company literally started the age of aviation – its roots go back to Orville and Wilbur Wright.

While their first flight was in 1903, it wasn’t until 1906 that the U.S. Patent Office could even wrap its head around a patent.

And in that year, there was a world aviation meet in Reims, France. One of the other U.S. participants was a gentleman named Glenn Curtiss.

During WWI, the Curtiss Aeroplane and Motor Company became the largest plane manufacturer in the world. By 1919, Wilbur had died and Orville had moved on.

But Wright Aeronautical continued, and with the help of Charles Lawrence, they built the first air-cooled engine. By 1927, that engine debuted in Charles Lindbergh’s Spirit of St. Louis.

These two aeronautical powerhouses merged into the Curtiss-Wright Corporation in 1929.

But it wasn’t until the 1960s that CW started to transition into the business it is today. In the 1970s, it bought the rights to the Wankel Rotary Engine, which Mazda Motor Corp. (MZDAY) still uses on select vehicles on the road.

And given its reputation for reliable engine technology, transitioning its valves and other parts for naval, nuclear, and automotive uses was an easy – and successful transition.

Today, CW supplies all the major aerospace companies, as well as heavy industry, utilities, and nuclear plants with parts for planes, rockets, power stations, and any number of other vehicles.

If it needs to be tough and reliable, then there’s likely to be CW parts in it.

A Multi-Faceted Choice

While CW spent its first 40 years building out aerospace bona fides, today, it has matured into a diversified precision components and engineered products leader across a number of industries.

For example, as the renaissance of nuclear power emerges, the new plants will rely on reliable parts and equipment manufacturers. CW is one of the best in the industry.

CW is also a leading supplier to industrial equipment companies. So, it stands to reason that if it can make parts and equipment for some of the most demanding environments in and out of this world, it can certainly supply the companies that build mining, construction, and other types of equipment.

CW builds many of the “black box” flight recorders on airplanes and has been working with Formula 1 racing to keep pushing the envelope on product design and development.

This all leads up to the massive potential for CW as we enter Space Race 2.0. I’m not talking about the rockets as much as the space vehicles that will be a part of building a base camp and mining the surface on the moon.

Companies like Caterpillar Inc. (CAT) have been developing autonomous equipment with NASA to do this for years now.

The point is, CW isn’t a company to buy now in hopes its business model works out. It’s already working.

Net income growth was 32% last year, earnings continue to rise, and EBITDA growth is more than 9%.

Its sales growth is also expanding at a healthy clip and that should continue to rise for years to come.

No wonder CW is trouncing the return of the S&P 500.

So far this year, CW is off less than 1%. But that compares to a decline for the S&P of more than 15%.

If nothing else, CW is a great way to profit from rising global tensions as exemplified by the war in Ukraine.

As the U.S. and NATO seek to replace damaged or destroyed equipment and increase overall defense spending, CW is set up to profit from it all for years to come.

Cheers and good investing,

— Michael A. Robinson

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Source: Strategic Tech Investor