Which Company Will Win the $13 Billion Prize?

Watch stocks you care about

The single, easiest way to keep track of all the stocks that matter...

Your own personalized stock watchlist!

It's a 100% FREE Motley Fool service...

Click Here Now

In a time where fear over sequestration is running rampant and taking its toll on defense companies and their stocks, it's nice to hear a little good news. And a major contract is very good news --both for the companies and their investors.

What major contract?
Although the Joint Light Tactical Vehicle, or JLTV, project appeared to be dead, the Marines and Army scaled back their ambitions for the vehicle and have now taken an important step toward awarding a final production contract on the new JLTV.

That's great news for Lockheed Martin (NYSE: LMT  ) , Oshkosh (NYSE: OSK  ) , and AM General. All three companies beet out competitors General Dynamics (NYSE: GD  ) , BAE Systems along with subcontractor Northrop Grumman (NYSE: NOC  ) , and Navistar (NYSE: NAV  ) , to be awarded a fixed-priced contract to enter the engineering and manufacturing development, or EMD, phase.

The race is on
The winner of the final contract has yet to be decided, but being awarded contracts to enter the EMD phase is a huge boon for these companies. With the Army and Marines expected to order around 55,000 vehicles, at a cost of $250,000 each, the final contract could be worth in excess of $13 billion.

For now, each company has 12 months to build 20 vehicles apiece for the government and has to put the vehicles through 1,000 miles of rigorous testing. That means that by August 2013, the military should be able to start the comparison and award a production contract by 2015.

What to look for
Each company has strengths and weaknesses that could help determine a winner. Oshkosh makes the M-ATV, the vehicle that is closest to what the military now wants. But Oshkosh wasn't able to garner enough interest to receive a technology development, or TD, contract from the government in 2008.

Lockheed, on the other hand, did win a TD contract from the government, and Scott Greene, vice president of ground vehicles at Lockheed Martin's Missiles and Fire Control business, has gone into the EMD phase stating: "We've had a consistent team since day one, and this win highlights the merits of a stable, proven design. Two JLTVs have been produced on an active manufacturing line, so we are already well prepared for rapid production and testing." But this strength could turn into a weakness if Lockheed gets complacent in its win and fails to keep up with the other company's innovations.

AM General, along with General Dynamics, won a TD contract in 2008 and has more than 20 years of experience building, upgrading, and armoring the Humvee. However, AM General was awarded an EMD contract based on the JLTV concept it built without General Dynamics, so it's in the same boat as Oshkosh when it comes to proving itself.

Last, although General Dynamics, BAE Systems/Northrop Grumman, and Navistar didn't win EMD contracts, they have 30 days to notify the government that they're still going to submit versions of their JLTV -- they just have to develop it with their own money.

With $13 billion-plus at stake, having gone through the first few phases of development, and a major contract -- and subsequent stock boost -- on the line, don't be surprised if they do.

Keep your eyes peeled
Right now, it's still too early to predict a winner. But you can bet I'll be monitoring this situation closely, and I will be updating as I get more information.

Don't want to wait for one of these stocks to take off? The Motley Fool's free report "These Stocks Could Skyrocket After the 2012 Presidential Election" goes through a number of companies that could experience significant growth in the next few months. Access your free report today.

Fool contributor Katie Spence is a defense nerd. She owns stock in Northrop Grumman but in no other company mentioned above. Follow her on Twitter, @TMFKSpence. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days. The Motley Fool has a disclosure policy.

Read/Post Comments (0) | Recommend This Article (7)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2001202, ~/Articles/ArticleHandler.aspx, 10/28/2016 8:43:43 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 11 hours ago Sponsored by:
DOW 18,169.68 -29.65 -0.16%
S&P 500 2,133.04 -6.39 -0.30%
NASD 5,215.97 -34.29 -0.65%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/27/2016 4:02 PM
LMT $248.53 Down -1.56 -0.62%
Lockheed Martin CAPS Rating: ****
OSK $52.58 Down -0.85 -1.59%
Oshkosh Corporatio… CAPS Rating: ***
GD $150.13 Down -1.01 -0.67%
General Dynamics CAPS Rating: ****
NAV $22.31 Down -0.15 -0.67%
Navistar Internati… CAPS Rating: **
NOC $225.35 Down -2.70 -1.18%
Northrop Grumman CAPS Rating: ****