I guess the Pentagon read my anti-blimp screed from last week and finally came to its senses…
Last week I told you about how thrilled I was that the now-famous JLENS blimp had escaped from its tethered perch. The monstrous surveillance balloon had been looming over my home for so long I had almost accepted it as some omnipotent overlord.
That nightmare is now officially over…
Police put the wayward blimp down with a flurry of 100 shotgun blasts — something I fantasized about ever since I first laid eyes on it. To put in perspective how poorly constructed this blimp was, it was designed to deflate immediately upon breaking loose.
That didn’t happen, hence the blimp’s violent death in the Pennsylvania woods.
Anyway, I was still obsessed with the one remaining blimp — like peregrine falcons, these blimps hunt in pairs — that still hovered large in my skyline. So I did some boots-on-the-ground research. I teamed up with my son to investigate the large field behind our house to hunt for the remaining blimp, and lo-and-behold…
IT WAS GONE!
“Ding dong the witch is dead!” I sang as I did a little jig that left my son confused and scared. I almost had a tear of joy in my eye…
After the humiliation of having to put a multi-million-dollar project out of its misery with a shotgun, the House Armed Services Committee stepped in and dealt the whole program a mercy killing.
“What we need is an unbiased investigation into JLENS incompetence,” said senior committee member Rep. Jim Cooper of Tennessee.
“We should defend the U.S. from low-flying threats, but this seems a stupid way to do it.”
I couldn’t agree more. These blimps were stupid to say the least. However, some lawmakers are still fighting to keep the “zombie program” going, in spite of the factual evidence that A) It doesn’t work and B) it’s prohibitively expensive.
As I told you last week, that’s one reason why I’m not recommending Raytheon (NASDAQ: RTN) stock.
Here are the best three defense plays that aren’t currently bogged down with useless programs, have launched impressive new programs, and have recorded impressive earnings for the last quarter…
Northrop Grumman is a security company that provides systems, products, and solutions in aerospace, electronics, information systems, and technical service areas to government and commercial customers worldwide.
It just won a multi-billion-dollar contract to build the Air Force’s Long-Range Strike Bomber.
It beat out Lockheed Martin (NYSE: LMT) and Boeing (NYSE: BA) for the potential $80 billion deal. The new B-3 bomber will replace the iconic B-52s.
This is the single biggest Pentagon contract in over a decade. This is an example of a winning government contract. It is considered “transformational for Northrop Grumman”, according to industry analysts.
The deal could pile another $1 billion per year on NOC’s annual revenue. The stock responded accordingly and shot from $170 to $180.
It also reported some pretty serious earnings and new contracts for Q3:
- Third quarter 2015 net earnings increased 9% to $516 million
- Earnings per share grew 22%, driven by strong performance
- Third quarter 2015 new awards totaled $4.8 billion, and new awards for the first nine months totaled $15.5 billion
Since the “fiscal cliff” defense debate in 2012, Northrup Grumman is up 183%. Since, 9/11, it’s up 397% — not including the 1.95% dividend that has averaged around 15% increase a year.
Veteran-owned broker Drexel Hamilton has put the 12-month price target at $211.00, which would be a nice boost from its current price of $181.
If you want a defense stock, you can’t do much better…
General Dynamics is an aerospace and defense company that focuses on Aerospace, Combat Systems, Information Systems and Technology, and Marine Systems.
Its Aerospace division is well known for its Gulfstream aircraft, which has seen a lot of demand. You know the Gulfstream jet as the preferred method of transport for extremely rich people — of whom there are many. Steve Jobs, Warren Buffett, Mark Cuban, and Tiger Woods have all owned one or two.
“Maverick’s New Top Gun”
That’s “Maverick” Tom Cruise’s Gulfstream IV, which cost $38 million. In short, rich guys aren’t going anywhere. The latest Gulfstream G500 has just completed 100 hours of flight and is poised to be the most advanced version yet.
General Dynamics also just opened a regional parts distribution center near the Al Maktoum International Airport in the United Arab Emirates, which will service the super-rich in the Middle East, India, and Africa. Al Maktoum International is expected to become the world’s largest airport.
But General Dynamics is also a major player in the defense space: you can chalk up its impressive third-quarter earnings to international defense orders and increasing sales from its submarine-building unit.
All together, General Dynamics crushed earnings last quarter…
Here are the highlights:
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Third-quarter earnings from continuing operations beat industry estimates at $2.28 per share, an 11.2% increase from this time last year-ago
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Earnings are expected to be between $8.90 and $9.00 per share for 2015, up from $8.70 to $8.80 projected earlier
- Total revenues of $7.9 billion are up 3.1%
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Marine Systems: The segment’s revenues of $2,087 million were 14.7% higher than $1,820 million a year ago.
Here’s its post-9/11 chart:
That’s a 280% gain.
It’s currently trading around $144, but median analyst estimates put General Dynamics somewhere closer to $170 within the next year.
That’s an easy 16% in the short term, and if you add the 1.9% dividend to that, you have a no-brainer over the long haul.
But there is one easy way to play every major defense stock at the same time…
Now, these government contracts shift and companies are constantly trying to outdo one another.
So, if you want to avoid getting in the middle of a defense stock arms race, but still want to get exposure to the sector, there is one easy way to do so…
iShares U.S. Aerospace & Defense ETF (NYSE: ITA)
This fund tracks the Dow Jones U.S. Select Aerospace & Defense Index, which is made up of U.S. companies in the aerospace and defense sector — including the two we just went over.
ITA is the largest ETF in the sector, with $526.19 million in assets.
Here are the top 10 holdings:
- Boeing Company (NYSE: BA)
- United Technologies Corporation (NYSE: UTX)
- Lockheed Martin Corporation (NYSE: LMT)
- General Dynamics Corporation (NYSE: GD)
- Northrop Grumman Corporation (NYSE: NOC)
- Raytheon Company Common Stock (NYSE: RTN)
- Precision Castparts Corporation (NYSE: PCP)
- L-3 Communications Holdings (NYSE: LLL)
- Textron Inc. Common Stock (NYSE: TXT)
- Rockwell Collins, Inc. (NYSE: COL)
It has an expense ratio of 0.43% and yields a 1.06% dividend.
Unless you’ve been living under a rock (in which case I’m kind of envious), you are all too aware that global instability and war haven’t gone anywhere. In fact, it seems worse now than it has since 9/11.
So, I think we can agree that the United States will be sinking gratuitous amounts of money into “defending ourselves.” If you want a defensive portfolio, you can do worse than this collection of defense stocks.
