The Pentagon and the U.S. defense industry recently scored a massive victory - with bipartisan support, no less, practically impossible these days - that has largely flown under the radar. Their budget measure made it through Congress in the middle of last month with very little attention, no doubt due to a heavier media focus on inflation and omicron.

There are a lot of good reasons to keep money flowing toward the military right now. China increasing military pressure on Taiwan, tension over shipping in the South China Sea, a cooperative defense agreement between Russia and China, Russia's belligerence in eastern Ukraine - all these things point to an increased need for U.S.-led defense coalitions in that region.

One area of special interest is in tech R&D. With South Korea announcing that it now has hypersonic missile technology, and the world's most important microchip foundries in Taiwan at risk from China's aggressive posture, it's more important than ever to make sure America can keep pace.

I've identified a contractor that's positioned to benefit from the 5% Pentagon budget increase that goes along with this new bill, and to me, it's a must-own stock. The firm more than doubled the market's returns last year and has more upside ahead...

Photo by Paul Cuad on Unsplash

Civilian Manufacturing and Modern Defense

That firm is Textron Inc. (TXT). It is a conglomerate with a history that dates back to 1923, and its pedigree in tech R&D is almost unparalleled.

This company builds everything from aircraft (think Hawker, Beechcraft, and Cessna) to golf carts (E-Z-Go). Jacobsen, Arctic Cat, Cushman, and Kautex are just some of the brands in its collection.

But a lion's share of its revenue comes from its defense operations. It's a key niche player in a variety of sectors, including cutting-edge fixed-wing and rotor aircraft to autonomous vehicles and ground-based strategic deterrents.

Consider that its T-6 trainer and its brawnier AT-6 light attack planes have been used to train Allied air forces around the world. The AT-6 is especially valuable in drug interdiction and in difficult remote terrain where it can operate better than larger attack planes.

Then there's the Scorpion, a jet that provides both ISR (intelligence, surveillance, reconnaissance) and strike capabilities.

Textron also owns Bell Helicopter, and therefore, some of the most storied rotor-powered vehicles ever built. The Bell Huey Cobra was a legend for much of the latter 20th century. And the V-22 Osprey is a military VTOL that combines the flexibility of a helicopter and the speed of a turboprop plane.

Its Howe & Howe brand makes cutting-edge robotic land vehicles for extreme conditions. Its Lycoming Engines division powers over half the world's general aviation fleet.

Earnings Turnaround

This combination of solid civilian and defense portfolios is a great twofer for investors looking to capitalize on both the economic rebound and a restructuring defense sector.

And Textron's stock's performance certainly reinforces that view. Last year, it gained some 57%, more than double the S&P 500's 26% gain. Right now, the stock is up 63% in the past 12 months, yet it's trading far below the average PE for the S&P 500.

Let me be candid, though: Over the past three years, earnings growth was weak. Some of that was pandemic related, some election-related, some sector related.

But that changed in the most recent quarter when Textron posted 60% earnings growth. That was what Wall Street analysts expected for the full year.

And there's still plenty of upside ahead.

Just to be conservative, let's cut earnings expectations in half. That's still an earnings double in as little as 2.5 years.

So, a company like Textron isn't just defending America. It's safeguarding your portfolio as well.