Tap Into the Industrial Military Complex With Three Defense Stocks
By Investment U Research
Bellwether defense stocks have trounced the S&P 500 for 27 years. In the months and years ahead it won't be any different.
Fact is, the U.S. military is one of the most profitable clients a business can serve.
Not only is it a loyal repeat customer, the Department of Defense is a big spender... really big.
In fact, it spends more money on national defense than China, Russia, U.K., Japan, France, Germany, India, Saudi Arabia, South Korea, Canada, and Australia combined.
While its spending habits may often be questioned, big budgets mean big bucks to companies delivering products and services to the armed forces. Indeed, profits at three defense contractors in particular have been on a tear for decades.
Here's why business at the following three defense companies should only get better... and how to capture another decade of double-digit growth... starting now. Here's a rundown on each, as they help to construct the largest military history's ever seen...
Lockheed Martin: The U.S. Government's Numero Uno...
Lockheed Martin (NYSE: LMT) is the world's #1 defense contractor, and the U.S. Government accounts for 80% of its business.
The company is currently charged with the production of the F-16 and F-22 fighters, as well as its latest multirole fighter, the F-35. The government intends to buy thousands of these aircraft to provide the bulk of its tactical airpower for the US Air Force, Marine Corps and Navy over the coming decades.
Many of Lockheed's contracts are for cutting edge electronic systems, too.
Its technological expertise provides homeland security with airborne defense systems and guidance systems for missiles and satellites. And Lockheed also recently received a contract to produce Improvised Explosive Device Jammers for the Navy under an indefinite-delivery, indefinite-quantity contract.
Receiving contracts, of course, is really nothing "new" for the company. But business today is as good as it's ever been... And looks strong for years to come.
Boeing's Shares Take Flight, Fueled by Earnings
Boeing (NYSE: BA) is the world's largest aerospace company and second only to Lockheed in defense contracting. In 2011, almost 50% of Boeing's revenues were derived from U.S. government contracts. Its combination of a substantial commercial base and lucrative defense contracts has made the company extremely profitable.
And the contracts keep rolling in...
- Recently Boeing received a fixed price contract from the U.S. Army for low-rate initial production of the initial brigade set of Brigade Combat Team Modernization (BCTM) Increment 1 capabilities. Under the fixed-price contract, a team led by Boeing will equip the first Infantry Brigade Combat Team with these networked capabilities, along with associated system engineering and program management support.
- The company was also awarded a contract by the U.S. Navy. Boeing will supply Laser Joint Direct Attack Munitions (Laser JDAM) to meet the U.S. Navy's Direct Attack Moving Target Capability (DAMTC) requirements.
- Boeing's Integrated Defense Systems business has deals with the federal government to execute the Secure Borders Initiative and Search and Rescue Helicopter Program. IDS is also NASA's primary contractor for the International Space Station, not to mention the Space Shuttle Program, and its information and satellite systems.
- Commercial and defense orders have left the company with a record-breaking backlog, too. And its commercial-plane order sheet took on a slew of new orders for the popular 737. Leaving the company with a large grand total that's on pace to break 1,000 for a third consecutive year.
With all that, it's no wonder that Boeing's future looks very promising.
To be sure, earnings at Boeing should continue to mount. And money managers agree: institutions own 71% of Boeing's outstanding shares.
General Dynamics' High-Tech, Computer Fighting Machines
The U.S. Military is steadily becoming a high-tech, computer-based fighting machine. And General Dynamics (NYSE: GD) has done its best to accommodate this new direction.
GD was originally a ship builder, but that began to change in the 1990s. That's when it began acquiring companies with expertise in information technology.
Currently, the company provides the military with command and control systems, warships, nuclear submarines, tanks, amphibious assault vehicles and munitions. And the U.S. Government accounts for more than two-thirds of GD's sales. Perhaps that's why it's now the sixth-largest defense contractor in the world.
Business in 2012 looks just as promising as in year's past...
GD has received a contract to provide a variety of technical support and training advisory services to the Army.
Additionally, General Dynamics was awarded contracts to modernize the FAA's communications system. These contracts will require them to provide managed services support that includes:
- Maintenance and operations
- Upgrades and technology to existing administrative telephone systems
- Providing new administrative telephony systems and services
And the revenue is starting to hit the books.
Full-year 2011 earnings were $2.52 billion or $6.94 per share on a fully diluted basis, and revenue was $32.6 billion for the full-year.
So as long as the government's confidence in GD's ability to provide reliable high-tech machinery to the military rises, so, too, should its stock.
In short, business at Boeing, Lockheed and General Dynamics is strong. Each of these companies has made a fortune catering to government spending, and that trend should continue.
Right now, all three are trading relatively in line with their historical multiples. So while shares have obliterated the benchmark S&P 500 for more than 25 years now, expect more of the same in the months and years ahead.
Investment U Research Team