We've just started 2004, and it's by no means too late to pick up a copy of The Motley Fool's Investor's Guide to the year, Stocks 2004. In Stocks 2004, we've identified some companies that we think offer fairly juicy prospects for investors. As of today, the selections from last year's version, Stocks 2003, have returned 50%, up strongly from our December calculations of 39%, largely on sudden leaps in price of Activision (NASDAQ:ATVI) and Noven (NASDAQ:NOVN). (Activision was also one of David Gardner's selections in Motley Fool Stock Advisor). Yet another reason why we tend to pooh-pooh the overall importance of the one-year look back. Your thesis you can control. Timing, not so much. There again, 13 months don't mean much more than 12, but we're gratified that in both instances the business cases our analysts described are coming to pass.
One of the Stocks 2004 selections is defensive. Not defensive in the sense of buying gold and burying it in the backyard, or putting your money in good old treasuries. It's a defense stock, in the mould of General Dynamics (NYSE:GD), Lockheed Martin (NYSE:LMT) or United Defense Industries (NYSE:UDI). It's in the mould, but it's much smaller. In fact, this company has two main lines of business, the second being sport and health products, which may seem like a fairly bizarre combination, until you consider this -- it's business is body armor, and its main competition may very well be the folks at DuPont (NYSE:DD).
Tom Gardner, Fool co-founder and author of our Hidden Gems newsletter, unearthed this company, and I was pretty skeptical. Didn't we just go through a war, Tom? Why would you want to buy a defense company after the fact? Tom's response was interesting. On a macro level, it's often following conflicts that new products and releases from defense contractors come into demand. Until a military outfit goes through combat, it doesn't really know what has changed in the field. In the time after battles there is a tremendous amount of information on what worked and what did not, and military demands for the years following are shaped on these findings.
This particular company's body armor won high praise from the U.S. military during the Iraq war for its lightness, its durability, and its sophistication. What does that mean? Well, Tom seems to think that when the military finds something that enhances its ability to protect its troops and fulfill its missions that it will naturally be attracted to this product. That means rising sales, which, if a company is worth its salt, should convert to rising earnings and cash flows.
That's the thesis, but we're still early in the game. Stocks 2004 is still available for anyone who's interested in learning more.
Bill Mann owns shares of General Dynamics.
