Blast! I was this close to getting it right. This close.
Previewing the Pentagon's oft-postponed award of three contracts to build America's Next Top Humvee (for, like, the fourth time in five months) on Monday, I predicted the winners would be:
- Northrop Grumman (NYSE:NOC) and partner Oshkosh (NYSE:OSK)
- General Dynamics (NYSE:GD) and AM General (maker of the current Humvee)
- And, last but not least, BAE Systems, in conjunction with Navistar (NYSE:NAV). As I've argued for months, the Pentagon has revealed a real soft spot for Navistar in its recent awards of MRAP contracts, and I expected this favoritism to spill over to JLTV.
At the time, this last prediction was the most controversial. The common theory was that Northrop/Oshkosh, General D/AM General, and BAE/Lockheed Martin would win the contracts.
Think again
It's never been easy to fathom the government contracting process, and the Pentagon surprised a lot of people when it announced the real winners last night:
- General D/AM General -- the fan fave
- BAE/Navistar -- my contrarian call
- and ... not Northrop/Oshkosh, but instead BAE/Lockheed
That's right, folks. America's Next Top Humvee is almost certainly going to be built by a Brit, as BAE Systems has a hand in two of the three winning teams.
How then do we invest?
That's the real question. To my mind, yesterday evening's announcement tells investors four things:
- Oshkosh is going to have difficulties. With JLTV revenues now out of reach, this flagging manufacturer of heavy industrial equipment and heavy armored vehicles looks like every other heavily indebted manufacturer staring a recession in the face. In short, it's probably a "sell."
- BAE's the big winner. It trades on the London Stock Exchange, but if you can figure a way to buy it (for example, on the Pink Sheets here it's "BAESY.PK"), then the 11 P/E looks awfully tempting.
- Likewise General D: 10 P/E and 9.4% long-term profits growth -- before you factor in the revenues it could garner from JLTV? This here's a great prospect at a good price. Buy.
- Last but not least, for those of us who were hoping Ceradyne (NASDAQ:CRDN) would get a piece of the JLTV pie -- prospects look bleak. BAE is a direct competitor via its Armor Holdings subsidiary. That probably eliminates two out of three chances Ceradyne had to uparmor the new Humvee.
Sorry to be the bearer of bad news, but there it is.
Learn everything you ever wanted to know about the JLTV program in:
