The Pentagon's budget is facing steep cuts as a result of the recently passed debt-ceiling deal. That means fewer contracts for all things military, including top of the line fighter jets, nuclear submarines, and attack helicopters. Blackhawk down. Blackhawk down.
According to the White House, the deal "includes Savings of $350 billion from the Base Defense Budget -- the First Defense Cut Since the 1990s: The deal puts us on track to cut $350 billion from the defense budget over 10 years."
Moreover, because the specifics of $1.2 trillion worth of "deficit reduction" will likely be decided after the 2012 election, the defense budget could be facing more cuts.
"[An Automatic] Sequester Would Provide a Strong Incentive for Both Sides to Come to the Table: If the fiscal committee took no action, the deal would automatically add nearly $500 billion in defense cuts on top of cuts already made, and, at the same time, it would cut critical programs like infrastructure or education. That outcome would be unacceptable to many Republicans and Democrats alike -- creating pressure for a bipartisan agreement without requiring the threat of a default with unthinkable consequences for our economy," according to the White House.
Alexander Eichler of The Huffington Post suggests that private industry could already be feeling the effects of the budget cuts:
"Northrop Grumman and Lockheed Martin, two of the world's largest defense contractors, both saw their profits decline in the second quarter of 2011. Northrop CEO Wesley Bush has reportedly cited the budget debate in Washington as one factor depressing his company's sales," Eichler writes.
Hedge fund managers are already turning bearish on a number of Aerospace/Defense firms (listed below). Do you also think these companies are in the line of fire in the upcoming salvo of spending cuts?
List sorted by net shares sold by institutional investors as a percentage of the share float. (Click here to access free, interactive tools to analyze these ideas.)
2. L-3 Communications Holdings
4. Alliant Techsystems
5. General Dynamics
7. Lockheed Martin
8. Force Protection
Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned above. Analyst ratings sourced from Zacks Investment Research.
Kapitall's Andrew Dominguez does not own any of the shares mentioned above. Data sourced from Finviz.
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