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Defense News Roundup: Air Force Dodges Fake Rockets, Army Tilts at Windmills

By Rich Smith - Sep 15, 2013 at 10:45AM

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

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 2013. (A further $5.6 billion a week goes to pay the salaries and benefits of U.S. servicemen and servicewomen). Now, perhaps having been spooked by sequestration, the generals have been spending a lot less than that these past few months. But last week, they really opened up their pocketbooks.

In five short days, the Pentagon blew right through its weekly budget, awarding nearly $10.53 billion in contracts. Here are a few of the big line-items.

Wind power
Roughly two-thirds of the money the Pentagon shelled out last week went to "green energy." On Monday, the Pentagon announced a Power Purchase Agreement that earmarked $7 billion to buy wind energy from an array of 17 individual companies. Big utility concerns participating in the contract, including Duke Energy (DUK -0.52%) and Dominion Resources (D -0.39%), are likely to reap the bulk of the "task orders" handed out under this contract, but smaller players such as Everpower Wind Holdings, First Wind, and Turn Key Power will have a chance to bid on slices of the pie as well.

This contract mirrored a similar $7 billion award for solar power purchases announced last month.

Phalanx gun upgrades
Smaller in scale than the wind power contract, but sizable in its own right, is the $136 million contract that Raytheon (RTN) won last week. Over the next four years, Raytheon will be overhauling and upgrading MK15 Phalanx Close-in Weapon Systems for the U.S. Navy, and for allies Japan and Pakistan. Potentially, this contract could grow to more than $230 million in size, as "options" are exercised to order extra work.

Phalanx is a rapid-firing machine-gun-type weapon used to destroy airborne threats. In use by 25 navies around the globe, Raytheon's Phalanx is described as a naval vessel's last line of defense against hostile air attacks, which have penetrated all outer defenses.

Fake bad guys
Meanwhile, on the other side of the coin, the Pentagon awarded funds to protect its own airplanes from anti-aircraft weapons like the Phalanx. Specifically, the Air Force awarded Northrop Grumman (NOC -0.09%) $219 million for the production of Joint Threat Emitters, or JTEs, for its own use in training operations, and also for use by the Royal Saudi Air Force.

A piece of equipment designed to mimic the performance of hostile anti-aircraft and surface-to-air missile batteries, JTE is used to give Air Force pilots "true warfighter training." The device "lights up" aircraft just as if they were getting illuminated by a hostile anti-aircraft radar, giving pilots the opportunity to practice evasive maneuvers and electronic jamming defenses ... without the risk of getting blown up if they fail.

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

Late last week, DefenseNews.com reported that there may be a pair of such contracts in the offing. Specifically, over in India, the Defence Acquisition Council on Friday approve the purchase of six Lockheed Martin (LMT -0.40%) C-130J Hercules transport aircraft from the U.S. government. These planes would be in addition to the six C-130Js that India ordered from Lockheed back in 2007. Furthermore, India is also reportedly interested in buying an additional half-dozen C-17 Globemaster III transports. Boeing inked a deal to sell India 10 of the big birds just two summers ago -- and already, it seems the Indian air force is hungry for more.

Combined, these two deals promise billions of additional revenues for Lockheed and Boeing. Yet neither of these deals has yet been officially announced. Most investors aren't factoring the extra revenues into their valuations of the companies, because no one knows about them -- except that now, you do.

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 for defense investors. Want to find more "easy to understand" investments? The Motley Fool's free report "3 American Companies Set to Dominate the World" shows you how. Click here to get your free copy before it's gone.

Fool contributor Rich Smith has no position in any stocks mentioned. The Motley Fool recommends Dominion Resources and owns shares of Lockheed Martin, Northrop Grumman, and Raytheon. 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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Stocks Mentioned

Raytheon Company Stock Quote
Raytheon Company
RTN
Lockheed Martin Corporation Stock Quote
Lockheed Martin Corporation
LMT
$426.41 (-0.40%) $-1.72
Northrop Grumman Corporation Stock Quote
Northrop Grumman Corporation
NOC
$477.59 (-0.09%) $0.45
Duke Energy Corporation Stock Quote
Duke Energy Corporation
DUK
$109.16 (-0.52%) $0.57
Dominion Resources, Inc. Stock Quote
Dominion Resources, Inc.
D
$82.57 (-0.39%) $0.32

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