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Meet Hewlett-Packard, the Defense Contractor

By Anders Bylund - Updated Apr 6, 2017 at 11:45AM

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Military contractors come in all shapes and sizes.

If you thought that defense contracts were the eminent domain of traditional arms dealers, you're sadly mistaken. The lion's share of Army, Navy, Air Force, and Marine Corps contracts surely go to Boeing (NYSE: BA), Lockheed Martin (NYSE: LMT), and General Dynamics (NYSE: GD), but the pie is so big, and information technologies are becoming such an integral part of the military, that even Silicon Valley geeks can grab a serious slice.

Today, Hewlett-Packard (NYSE: HPQ) renewed an IT support contract with the U.S. Navy, adding another three years of support services for as much as $3 billion in cash. EDS started this service deal way before becoming an HP division, and had most recently reupped the deal three years ago for another $3 billion. This is serious cash even for a giant like HP, because the Navy network is among the largest IT installations anywhere.

It doesn't stop there. IBM (NYSE: IBM) has a strong relationship with the military and federal government and has a massive contract for automating forms across the Army, as just one example. In fact, pick a large IT shop, and chances are that it dips into government spending on a regular basis.

And then you have smaller outfits like Inside Value recommendation SAIC (NYSE: SAI), which makes a great living in the shadow of those giants waltzing above it. In the words of CAPS All-Star TMFPlatoish, SAIC "doesn't deliver big weapon systems or fighting platforms, rather it works on all of them and gets its cut of the pie, no matter who wins the hardware contract." Sounds to me like a sustainable business plan.

The defense sector is full of surprises. Don't miss out on a chance to get some value out of Uncle Sam's spending habits.

Fool contributor Anders Bylund holds no position in any of the companies discussed here. General Dynamics and SAIC are Motley Fool Inside Value choices. Try any of our Foolish newsletters today, free for 30 days. You can check out Anders' holdings and a concise bio if you like, and The Motley Fool is investors writing for investors.

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Stocks Mentioned

HP Inc. Stock Quote
HP Inc.
$34.65 (1.26%) $0.43
International Business Machines Corporation Stock Quote
International Business Machines Corporation
$134.01 (1.11%) $1.47
The Boeing Company Stock Quote
The Boeing Company
$169.99 (1.26%) $2.11
Lockheed Martin Corporation Stock Quote
Lockheed Martin Corporation
$434.24 (1.26%) $5.39
General Dynamics Corporation Stock Quote
General Dynamics Corporation
$237.95 (2.64%) $6.13

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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