And so it begins.

The new health-care reform law was met with a round of raspberries from Wall Street this week. Following in the footsteps of titans Caterpillar, Deere, and AT&T (NYSE: T), 3M (NYSE: MMM), Prudential (NYSE: PRU), and Xcel Energy all announced charges of their own over the past few days. The Wall Street Journal puts the total damage at $1.5 billion in lost profits so far, and says that's only a fraction of the eventual carnage. Charges for lost tax deductions from this bill could eventually balloon to $4.5 billion.

Just another April Fool's story? I'm afraid not. And speaking of fear ... last week I warned that "an awful lot of defense stocks are in the same boat" as the above-named charge-takers. This week confirmed my fears, as Lockheed Martin (NYSE: LMT) and Boeing (NYSE: BA) announced that they are also going to take a hit from the health-care overhaul -- nearly $250 million in total.

Little wonder, then, that our portfolio dropped even further behind the S&P this week:


Starting Price*

Recent Price

Total Return

General Dynamics




Raytheon (NYSE: RTN)




Lockheed Martin




AeroVironment (Nasdaq: AVAV)








Force Protection








S&P Spyder








Source: Yahoo! Finance.
*Tracking began on July 10, 2009. Portfolio is equal-weighted, with "recent price" being set at market close yesterday, and adjusted for stock splits and dividends.

But it wasn't all bad news.

This week's defense roundup
In fact, investors in two of our portfolio companies are hopping with glee this week. After years of issuing press releases regarding development of its new mili-toy, Raytheon dropped the bomb this week. The Air Force is buying "an operationally significant quantity of the Miniature Air Launched Decoy."

Half-UAV, half-rocket, the MALD is a Raytheon-developed drone whose purpose is to die so that others might live. The 300-pound drone is designed and programmed to simulate the appearance of a fighter jet on enemy radar screens, diverting attention from real fighter jets, and increasing survivability of the latter. We don't yet know how many of the drones the Air Force is buying, but one thing's for certain: As a fire-and-forget weapon, every MALD launched by Raytheon is a MALD the Air Force must pay to replace. So stick another recurring revenue stream in Raytheon's quiver.

And speaking of fire-and-forget
A lot of investors had written off portfolio company AeroVironment (AV) after the company's last couple of underwhelming quarters. But this week, two analysts awoke to the company's potential, and initiated coverage with "buy" ratings. Perhaps coincidentally, on the same day as the endorsements came out, AV partner Nissan announced pricing of its new "Leaf" electric car at very attractive levels. It also announced that AV has the exclusive right to build Nissan-branded home charging stations for the car. A nice bit of serendipity, there.

Sector looking sickly?
But let's return to the top news item of the week, the health-care charges and their effect on Boeing and Lockheed. Apparently, neither company had considered the effect of Obamacare on their income statements when issuing guidance last quarter. But now that the bill has become law, Boeing tells us that Q1 earnings will be reduced by $0.20 on its health-care charges. Meanwhile, Lockheed's taking a $0.25-per-share charge.

But it's not all bad news for these defense titans. For example, Lockheed got a big confidence boost Tuesday from Air Force Chief of Staff Norton Schwartz. Addressing potential workarounds to the delay in getting Lockheed's F-35 fighter jets airborne, Schwartz argued against buying brand-new fighters like the F-16 and F-18, and in favor of overhauling existing fighter aircraft to extend their service life until the F-35s begin arriving. 

Reasoned Schwartz: "We do not think it is wise to dissipate the limited pool of resources that we have available for F-35 by procuring new, lesser capable aircraft that will last as long." Rather, the Air Force wants to preserve its "precious procurement dollars [to buy as many] ... fifth generation aircraft as possible." One trillion dollars, here we come!

Billions going to Boeing
Meanwhile, Boeing may not be looking at a trillion dollars in revenue right away, but it did get some good news this morning. Australian discount airline Virgin Blue has just announced its biggest-ever airplane order -- and it's all going to Boeing. Virgin placed a firm order for 50 B737-800NG aircraft, optioned another 25 planes, and to top it all off, took out 30 "future purchase rights."

What it all adds up to is a potential 105 sales of 737-800s for Boeing's commercial aircraft division, and at a list price that tops out at $81 million apiece, a potential additional $8.5 billion in revenue for Boeing. However, Virgin Blue's mention of "attractive commercial terms" probably means the figure's a bit south of that.

Hey, it's not a trillion dollars. But it's not bad for a day's work.

Boeing's stock has more than doubled over the past year. How do you know when "the train has left the station" and it's too late to buy? Here's how.