Investors were at no loss for interesting news to ponder last week.
We started off with a shocker of an announcement that Bank of America's
Meanwhile, the embattled defense sector just kept plugging along, booking new contracts, yet watching its market cap fall farther behind a surging market regardless:
|
Company |
Starting Price* |
Recent Price |
Total Return |
|---|---|---|---|
|
General Dynamics |
$51.24** |
$65.28 |
27.4% |
|
Raytheon |
$41.99** |
$45.59 |
8.6% |
|
Lockheed Martin |
$77.69** |
$73.00 |
(6%) |
|
AeroVironment |
$29.96 |
$28.46 |
(5%) |
|
iRobot |
$11.49 |
$11.52 |
0.3% |
|
Force Protection |
$4.57 |
$6.15 |
34.6% |
|
AVERAGE RETURN |
|
|
10% |
|
S&P Spyder |
$87.75** |
$106.61 |
21.5% |
|
DIFFERENCE |
|
|
(11.5) |
Source: Yahoo! Finance.
*Tracking began on July 10, 2009. Portfolio is equal-weighted, with "recent price" being set at market close on the Thursday preceding publication, and adjusted for stock splits and dividends.
**Adjusted for dividends.
Lockheed has its warplanes, Raytheon its rockets, AeroVironment and iRobot their hi-tech mech-warriors, but none of these companies fared well last week. To the contrary, last week's biggest winners were the "grunts" of the portfolio -- ground warfare dominators General Dynamics and Force Protection.
General Dynamics takes command
Of the two, General D captured by far the most ground last week. On Monday, the tank maker won a $430 million tank engineering contract from the U.S. Army's Tank Automotive Research, Development and Engineering Center. It followed this up the next day with a double-header at-sea -- $320 million to perform further engineering work on the U.S. Navy's nuclear submarine fleet; and another $140 million to perform IT work for the U.S. Coast Guard.
But General Dynamics gets more done by week-end that most companies accomplish all year long -- and it wasn't finished yet. Fast-forward a few more days, and we found the General marking its biggest success of the week, inking a deal to sell 352 of its Stryker armored personnel carriers to the military for nearly $650 million. When you add it all up, that makes ...
Pencils down
... more than $1.5 billion in new contracts that the General captured last week. Not bad for five days' work, huh?
Meanwhile, as General Dynamics was busy landing $1.5 billion of new business and reaping nearly 5% in market-cap gains for its efforts, tiny sometimes-rival-sometimes-partner Force Protection was rewarding its shareholders for doing ... nothing.
Apparently. At least for now.
Force projections
Search all you like, and you won't find a word on Yahoo! Finance about new contract wins for tiny Force Protection. So what explains the company's startling 12% rise in stock price last week?
The answer, it would appear, is that rumors are starting to swirl concerning the company's much-ballyhooed Ocelot modular armored truck. As we discussed last month, Force developed the Ocelot to compete in the U.K. Ministry of Defense's Light Protected Patrol Vehicle contest. There's a bullish sentiment on Force's chances of winning a contract here -- despite all past history to the contrary. That hope alone seems to have undergirded Force's surprising rush forward last week.
Foolish takeaway
A few words of caution may be in order here. Analysts have made bullish prognostications concerning Force in the past, only to be let down -- and to let investors down -- when big contracts were ultimately awarded. Force's spotted history of success in big armored vehicle competitions argues in favor of adopting a cautious stance on the Ocelot's chances.
That said, with the stock selling for just 10 times trailing earnings -- earnings projected to grow at 20% annually over the next five years -- Force Protection seems to offer a fairly wide margin of safety. If you're game to throw the dice on this one, I couldn't blame you. Fact is, I'm pretty tempted myself.
