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Defense News Roundup: A Slow Week at the Pentagon Heats Up at the End

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). This past week, though, the Pentagon's contract specialists took Monday off along with the rest of the country -- and then, for good measure, took Tuesday off as well. Over the remaining three days of the workweek, they awarded "only" $1.26 billion in new contracts.

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

Oil changes and propeller rotations
Any other time of the year, L-3 Communications' (NYSE: LLL  ) $129 million contract "modification," awarded Wednesday, would have been one of the smaller items on the Pentagon's credit card bill. This week, though, it was one of the biggest expenditures. The Army hired L-3 to continue performing maintenance work and upgrades on its fleet of C-12, RC-12, and UC-35 fixed wing transport aircraft through Jan. 31, 2015.

Simultaneously, the U.S. Navy tapped Boeing (NYSE: BA  ) to do similar work on its F/A-18 fighter jets in a contract worth just a skosh under $18 million. And the Marines awarded Textron (NYSE: TXT  ) $13 million and change to repair certain "high-priority items" on its UH-1Y Venom utility helicopters and AH-1Z Viper attack helicopters.

DARPA doles out funds
Such routine maintenance work was the order of the day at the Pentagon last week, with most contracts parceling out funds in drips and drabs, just keeping the military's war machines in working order. Among the more interesting -- if not much more lucrative -- contracts awarded, though, were a pair of R&D contracts awarded Friday by DARPA, the Defense Advanced Research Projects Agency.

DARPA awarded Lockheed Martin (NYSE: LMT  ) $21 million for its work on the Long Range Anti-Ship Missile program, which aims to develop a ship-launched missile that can travel exceedingly long distances and survive anti-aircraft fire, jamming of its guidance communications, and even jamming of GPS signals by the enemy, yet still strike "pinpoint specific targets" through use of onboard Autonomous guidance algorithms.

Meanwhile, United Technologies (NYSE: UTX  ) won a somewhat more mysterious award. For $8 million, UTC will attempt to engineer and fabricate a full scale prototype of a new kind of rotor for America's submarines under DARPA's Hybrid Multi-Material Rotor program. Not much is known about the program, but a published grant proposal out of Harvard University suggests that DARPA's aim is to develop a new rotor that's half the weight of the rotors that currently propel American nuclear submarines, but 150% as strong.

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 Friday, we learned that the U.S. Defense Security Cooperation Agency has notified Congress of plans to make a sizable arms sale to the United Arab Emirates. Specifically, plans are to sell the UAE gun systems, GPS navigation systems, and other electronic equipment necessary to upgrade the country's fleet of 54 F-16E "Block 60" fighter jets, and to equip a further 30 newer Block 61 F-16s that the country is negotiating to purchase from manufacturer Lockheed Martin. If approved, the contract should be worth $270 million to the defense contractor.

Of course, this contract hasn't been officially announced yet, and isn't common knowledge. Thus, few investors are factoring it into their valuations for Lockheed Martin. Very few people know about it -- except that now, you do.

This UAE F-16E Fighting Falcon is armed to the teeth already. Imagine what it will look like, once upgraded. 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 brand-new special report, "The 3 Dow Stocks Dividend Investors Need." It's absolutely free, so simply click here now and get your copy today.

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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.

  • Report this Comment On January 26, 2014, at 12:20 PM, ilsm50 wrote:

    Investing in a racket!

    Military industry complex stocks are tradable, until the con run from the congress pentagon axis is broken.

    Chart is interesting but outdated and does not say whether figures are adjusted for inflation, military industry inflation is multiples of price escallation seen in actual industries. Pentagon bubble needs to burst the 2014 levels are near Reagon peaks in "real" dollars for a force at least a third smaller and lot less reliable. Only the pentagon can develop technology that gets more expensive and less useful as it "matures".

    While foreign military sales' prices are discounted by congress waiving the law requiring foreign buyers to pay recoupment for the taxpayer investment in the weapons sold to profit the industry.

    US has to subsidize weapons sales to the Sheiks otherwise the socialist Euro sales would win out.

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Rich Smith

As a defense writer for The Motley Fool, I focus on defense and aerospace stocks. My job? Every day of the week, I'm monitoring the news, figuring out the winners and losers, and tracking down the promising companies for you to invest in. Follow me on Twitter or Facebook for the most important developments in defense & aerospace, and other great stories.

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