America: Guns "R" U.S.

The business of America is bombs -- and business is booming.

According to the Defense Security Cooperation Agency, between 2005 and 2010 the United States exported $96 billion worth of weaponry to allies and client states. Care to guess how much arms we'll be trafficking in 2011? Better sit down first.

The magic number: $46 billion. This year we're on track to export nearly half as many weapons internationally as we shipped in the past five years combined. And that's just the tip of the high-explosive iceberg. DSCA tells us that at this very moment, the U.S. government is working through a backlog of 13,000 arms contracts with 165 countries, valued in total at $327 billion. So even as budget cuts are the order of the day in domestic military sales, overseas, business is still booming.

Who's set to benefit from this trend? A review of the major defense contractors and the geographical sources of their revenue streams provides a few clues.

Company

Revenues From U.S.

International

P/E

Raytheon (NYSE: RTN  ) 77% 23% 10.3
General Dynamics (NYSE: GD  ) 82% 18% 10.0
L-3 Communications (NYSE: LLL  ) 87% 13% 9.7
Olin Corp (NYSE: OLN  ) 92% 8% 9.4
Northrop Grumman (NYSE: NOC  ) 95% 5% 8.9

Now, mind you, this data isn't 100% complete. You'll notice that America's two biggest defense contractors aren't even on the list. Lockheed Martin (NYSE: LMT  ) doesn't break out its revenue sources geographically. Boeing (NYSE: BA  ) does, but when it tells investors that fully 41% of its revenues from abroad, it's hard to say how big the arms component of that revenue stream might be, given that Boeing also does big business in commercial airplanes.

What I can tell you is that according to DSCA, one of the fastest-growing and most lucrative pieces of the international arms trade is munitions. Rocketing militants in Afghanistan and Pakistan, bombing bad guys in Iraq, and liberating Libya are all events eating up a lot of boom-sticks among U.S. allies. As DSCA reports, "Several nations participating in the NATO-led air campaign on Libya have … contacted the DSCA to replenish their stocks of ammunition depleted by the operations."

Foolish takeaway
For this reason, investors might want to pay special attention to Raytheon. It doesn't cost much more than its defense-contracting peers. It's focused more intently than anyone else on the international market. And it specializes in rockets, a commodity that tends to get eaten up quickly in air-to-ground combat operations.

Raytheon: Right place, right time, right stock.

Can Raytheon capitalize on America's role as arms supermarket to the world? Add it to your Fool Watchlist, and find out.

Fool contributor Rich Smith has no position in any company named above, but The Motley Fool owns shares of Northrop Grumman, Raytheon, Lockheed Martin, General Dynamics, and L-3 Communications Holdings, and Motley Fool newsletter services have recommended buying shares of L-3 Communications Holdings. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (7) | Recommend This Article (5)

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  • Report this Comment On June 14, 2011, at 2:22 AM, Yevaru wrote:

    What a despicable list! These companies' products, if used as intended, will obliterate the human race. But in a weird way, thank you. I'll never touch these stocks with a barge pole.

  • Report this Comment On June 14, 2011, at 3:49 PM, boogaloog wrote:

    Yevaru,

    If used as intended, these companies' products will minimize loss of life when stopping tyrants from brutalizing common folk. I'm no great supporter of our military or the needless wars in Iraq and Afghanistan, and I'm not blind to the fact these weapons can be misused (see needless wars in Iraq and Afghanistan). But there's a huge focus on increasing weapon effectiveness while minimizing casualties. Non-lethal weapons are a big part of the future. But as long as there are bad guys out there intent on getting all they can while enjoying the occasion (or frequent) torture of innocents, we unfortunately need lethal weapons too. I wish it weren't true, and I can only hope we use our firepower for good. But to blindly condem our weapons of war indicates that you have never considered what your life might be like if we didn't have them. Rainbows and unicorns? I think not.

  • Report this Comment On June 15, 2011, at 2:02 AM, ershler wrote:

    boogaloog,

    What was needless about Afghanistan? No reasonable person thinks Bin Laden wasn't behind 9/11 or the Taliban was sheltering him and had no intention of handing him over to us. What should we have done? Or do you mean we should have supported the Northern Alliance until our goals were met then abandoned them like we did after the Soviet defeat?

    Also, (and I don't agree with you that this is a reason for military action) you described the Taliban when you listed groups that lethal force are appropriate to use against.

  • Report this Comment On June 15, 2011, at 6:27 PM, boogaloog wrote:

    ershier,

    I believe hunting bin Laden could have been done without spending trillions through military action. No one can say what would have happened if we had done things differently, but I do believe we would have killed him a long time ago had we used our covert assets instead of the blunt force of the military.

    The needless part of Afghanistan is that we're spending so much more time and money trying to stabilize the place after we destabilized it even worse than it already was. We have so much more capability to eliminate specific targets, but we went in hell-bent on displaying our colossal might only to learn that we're now stuck mopping up our mess. And that just made groups like Al-Quaeda realize that they could operate quite well knowing that small, inexpensive, disruptive tactics would cost us dearly in preventative measures. They don't fear our might, they welcome it because they know it's bankrupting us.

  • Report this Comment On June 15, 2011, at 10:37 PM, ershler wrote:

    boogaloog,

    We didn't destabilize Afganistan, the Soviet Union did it when it invaded; unless you think it was better when the Taliban was running things then it is now. All we did was supply the Mujahideen with weapons and training, then left when the Soviets retreated.

    We were using covert assets to look for him. There have been numerous books and TV programs about these efforts.

    It doesn't take many people to run an insurgency but it takes a lot to run a counter-insurgency. The conventional forces sent to Afganistan didn't go there with the intent of finding Bin Laden, they went to participate in the counter-insurgency.

    Now you are just arguing tactics, not the necessity of the war. I agree with you that covert operations should be the first option but I don't think we would have ever captured or killed Bin Laden without overthrowing the Taliban first and unconventional forces couldn't have held Afganistan on their own. The US of done a better job moving from the insurgency to counter-insurgency portion of the war but that doesn't mean the war is unnecessary.

    Were you going to respond to my second comment in my first post?

  • Report this Comment On June 16, 2011, at 6:11 PM, boogaloog wrote:

    ershier,

    Good discussion here.

    I believe we did destabilize Afghanitstan, but that's not to say it wasn't already a mess. I do know that our presence there was not a political necessity until we invaded ... now we're stuck there. Is it a better place now than it was under the Taliban? Probably. But that doesn't convince me it was worth it. Maybe that's my own selfishness, but it has cost our country a lot to help out people from another country who weren't making the sacrifice themselves to get rid of their oppressive regime.

    We seem to agree that it takes a lot more to fight terrorists than to be a terrorist. Which is exactly what they want.

    I don't think I'm arguing tactics. Going to war is not a tactic, in my mind. Maybe we're arguing semantics. We'll never know if covert ops alone could have captured/killed Bin Laden, but it's my personal belief that we could have found him much faster if they didn't know we were looking for him so hard (yes, they'd know we're looking, but not with thousands of ground troops, checkpoints, etc, etc). Keep the effort all hush-hush until the last guy they suspect pulls the trigger on him. But without hopping into my alternate reality machine (it's in the shop), I'll never know if I'm right.

    As for you second comment in the 1st post, using lethal force against the Taliban is a tricky question for me. Sure, they're bad guys. But, as we're now realizing, they're more of a Afghan national threat, rather than the international threat that Al Qaeda is. If it were a simple question of removing them because they're bad guys, then no we shouldn't have used our force unless it was a situation like in Libya now where the locals took it upon themselves to change things (like we did a couple hundred years ago), and the gov't started slaughtering them. Then again, they were harboring Al Qaeda training camps. But it's starting to look like we're maybe beginning to negotiate with the Taliban so they can exist as long as they don't support groups that want to harm us. I have no idea if we ever tried that route before we attacked them, but I suspect we didn't. None of this means I approve of the Taliban in any way, but maybe there were other ways to take care of Americans instead of invading.

    Having said all that, it's entirely possible the Afghan war may not have been useless ... at the very least it was caused by real factors. But I'll never agree that Iraq was needed.

  • Report this Comment On June 17, 2011, at 3:10 AM, ershler wrote:

    boogaloog,

    Large portions of the Afghan population were fighting the Taliban. Remember those Northern Alliance guys the Green Berets hung out with. They had been fighting the Taliban since shortly after the Soviets left. Their leader, Ahmad Shah Massoud, was assassinated by al-Qaeda on September 9th, 2001.

    I also agree Iraq wasn't needed (I don't remember it was) but Afghanistan gets unfairly lumped together with it.

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