Defense News Roundup: Drones for America, and Fighters for Singapore

Here's our weekly rundown of the major stories in defense spending.

Jan 18, 2014 at 1:15PM

The U.S. military has a reputation as a somewhat secretive organization. But in one respect at least, the Pentagon is one of the most "open" of our government agencies. Every day of the week, rain or shine, the Department of Defense tells U.S. taxpayers what contracts it's issued, to whom, and for how much -- all right out in the open on its website.


So what has the Pentagon been up to this week?

DoD is budgeted to spend about $6.2 billion a week on military hardware, infrastructure projects, and supplies in fiscal 2014. (A further $5.6 billion a week goes to pay the salaries and benefits of U.S. servicemen and servicewomen.) So far this year, though, spending has been exceedingly light, with last week's contracts adding up to "only" $2.03 billion.

And what did the generals get for their (read: "our") money?

Better boats and gardens
General Dynamics' (NYSE:GD) Electric Boat Corp. subsidiary won a nice chunk of change -- $30 million -- when the U.S. Navy exercised an option on an underlying contract to have Electric Boat research "advanced submarine technologies" for the Navy's underwater boats. Electric Boat will be researching ways to improve hull integrity (so that boats can dive deeper), acoustics (so they'll be harder to see with sonar), and hydrodynamics (which has applications related to both the ease of finding a boat with sonar, and the speed with which boats move through the water), among other tasks. These funds will pay for about nine months' worth of research.

Flying robots
A second company winning work from the military is Northrop Grumman (NYSE:NOC). For $36 million, Northrop will continue providing logistics and engineering support for U.S. Army's fleet of RQ-5 "Hunter" Unmanned Aircraft Systems through Jan. 14, 2015.

An weaponizable version of Israel Aircraft Industries' Hunter UAV, the Army's Hunter can be equipped to carry Northrop's GBU-44/B GPS-aided and laser-guided smart bomb. The UAV is no longer in production, but it is still in operation, with about 20 units still in service pending eventual replacement by General Atomics' MQ-1C Gray Eagle UAV.

Eyes in Saudi skies
And in one of the biggest contracts of the week, United Technologies (NYSE:UTX) continues to benefit from its 2011 purchase of Goodrich. On Friday, Goodrich won a $183 million "contract action" under its foreign military sales contract to install DB110 Reconnaissance Systems aboard Royal Saudi Air Force fighter jets.

Incorporating "pods" mounted on a combat aircraft, DB110 is a long-range sensor system that can capture images day or night to assist a pilot in tasks such as assessing damage from a missile strike. The system can also transmit these images to intelligence officers on the ground in real time. Goodrich's next task under this contract will be to help set up ground stations to receive this data.

Opportunities on the horizon
So much for the contracts that everyone knows about. Now, let's move on to one contract that may not yet be incorporated into defense contractors' stock prices.

On Tuesday, we learned that the U.S. Defense Security Cooperation Agency has notified Congress of plans to make a sizable arms sale to Singapore -- worth more than all the other contracts that the Pentagon awarded to all of its other contractors last week ... combined.

Contractors such as Lockheed Martin (NYSE:LMT) and Raytheon (NYSE:RTN) will be hired to supply the Republic of Singapore Air Force with new radar systems and other electronics gear, plus training, testing, and exercise versions of advanced weapons such as the Sidewinder air-to-air missile, Maverick air-to-surface missile, and various smart bombs as well. All of this will be in furtherance of an effort to upgrade all 60 Singaporean F-16C, -D, and "D+" fighter jets to the new F-16V Viper configuration -- at a cost about 66% that of buying brand new F-16E/F fighter jets, with similar capabilities, from Lockheed. Assuming Congress permits the contract to move forward, this arms deal should be worth about $2.4 billion to the contractors involved.

Of course, this contract hasn't been officially announced yet, and isn't common knowledge. Thus, few investors are factoring either it, or the possibility of similar future contracts into their valuations for the principal contractors. Very few people know about it -- except that now, you do.

RSAF F-16D Fighting Falcon -- already looking pretty robust. Source: Wikimedia Commons.

Thanks for all the great stock tips, Pentagon!
You don't always have to look far to find good investments. Sometimes, profiting from our increasingly global economy can be as easy as investing in your own backyard -- and the Pentagon's helpful habit of publishing all its contracts daily as they're awarded certainly makes that easier. 

Want to find more "easy to understand" investments? Read The Motley Fool's free report "The 3 Dow Stocks Dividend Investors Need" to find out how. Click here to get instant access to one free copy.

Fool contributor Rich Smith has no position in any stocks mentioned. The Motley Fool owns shares of General Dynamics, Lockheed Martin, Northrop Grumman, and Raytheon Company. Try any of our Foolish newsletter services free for 30 days. 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.

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