Yesterday I spent some time on a pitch for a “Diamond in the Rough” stock from Jim Woods and promised to follow up… so that’s the plan this afternoon.
The bigger theme of the ad was that Woods has a list of five “Guardian Angel” stocks that will help you survive pandemics and recessions… and that still sounds pretty appealing to a lot of folks, even with markets soaring to crazier new highs almost every week these days, so today I’m moving on to the next couple of those “Angel” stocks — ready?
The first one is about guns…
“This year, the Department of Defense is receiving more than $900 billion to keep our country strong.
“For investor’s, that’s money in the bank.
“Because whatever money the military gets, they spend.
“And when it’s a totally new weapon system – not yet deployed, but soon to be…
“Supplied by one company – Jim’s #2 pick…
“It’s a sure bet that, if you get in early, you could become mega-rich.”
What’s that all about? This is a high-volume weapon being pitched, but it’s not one of the sexy mega-billions contracts like the next tank, aircraft carrier or fighter jet… it’s a bit smaller:
“The M16/M4 is done, finished. It’s being retired.
“The Pentagon intends to arm our soldiers with an entirely new and far more lethal assault rifle.
“It’s estimated that the initial contract to manufacture the weapon will be valued at $1.5 billion.”
OK, even as I loll about in my solid-gold bathtub, I must confess that $1.5 billion is nothing to sneeze at… what else, pray tell, can you tell us, sir?
“… Of all the companies bidding on the contract, three finalists were chosen to begin rigorous field trials – none of which is Colt.
“At the conclusion of the field trials, the Pentagon will choose one company to manufacture the military’s next generation assault rifle.
“Two Companies Are Producing Similar Style, Somewhat Traditional Looking Rifles…
“On Page 7 of Jim’s Special Report, he details why the two companies fielding the two rifles above have a slim to none chance of winning the Pentagon’s contract.
“Which brings us to Rifle #3.
“A ‘Made in America’ rifle, which Jim believes our soldiers will carry into combat for decades to come.
“The company producing it is one of the five largest defense contractors in the U.S.”
Wait a minute, you ask, if it’s one of the five largest defense contractors in the U.S. … wouldn’t $1.5 billion a year be just the “bribes and hookers” slush fund?
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I would never say such a thing, of course, but you’re probably not so far off, that’s not a huge amount of money for those gigantic companies. Lockheed Martin (LMT), for example, had $64 billion in sales just last year, and defense contracts for new weapons (like this new rifle) tend not to be one-year contracts. But still, let’s proceed…
“America’s 21st Century Assault Rifle….
“In military lingo, it’s a called a Bullpup.
“Unlike traditional rifles, the fire control system and the magazine of a Bullpup is located behind the trigger.
“The primary benefit of the Bullpup design is that it holds a longer barrel, which increases range and accuracy – all the while reducing the overall size and weight of the rifle.
“Best of all… it shoots farther and penetrates thick armor.
“This represents a quantum leap beyond traditional rifle design and a quantum-sized opportunity for you to cash in.”
OK, so that narrows it down quite a bit… and then one final hint:
“And the icing on the cake… the company pays a dividend yielding 3.18%.
“Note: The company has grown its dividend for 22 consecutive years, increasing its dividend by an average of 10.29% each year.”
Thinkolator sez this General Dynamics (GD), which is one of the big defense contractors and has indeed been raising its dividend every year for a very long time… right now, the shares are up a little bit so the yield is about 2.9%, but they’re due for their next annual dividend increase announcement in early March so that should go up slightly (the last increase was about 8%).
And that weapon? It’s General Dynamics’ entry in the competition to replace the standard infantry rifle, what they call the Next Generation Squad Weapon (NGSW) — and yes, their candidate is indeed a “Bullpup” design, with the barrel extended to near the stock and the magazine behind the trigger (which gives a longer barrel, all else being equal, and therefore better accuracy and range — I know almost nothing about military weapons, but it certainly looks different).
We have no idea whether or not this weapon will win the competition, I guess they’re slated to decide sometime this year, but even if they do, as you might have guessed, it’s not going to be the driving force behind GD revenues — this is a large company with a lot of huge contracts for weapons systems, they have a market cap of $45 billion and trailing revenue of nearly $40 billion, so a couple billion dollars over a few years for a new rifle program would be material… but not “double your earnings” material.
GD is fairly defensive, as befits a defense stock — it’s not currently growing, but has a pretty steady business and it doesn’t seem like the world is going to spend less on weapons in the near future. Right now they’re trading at about 14X earnings, with a roughly 3% dividend yield — which used to be kind of normal, but sounds awfully cheap in this environment. Analysts think that earnings will rise slightly over the next couple years after a dip in 2020, but there don’t tend to be shocking “beat and raise” quarters for these kinds of companies that are going to make you dance in your pajamas when you see the tickers poppi