Investing in Defense Companies

During the past Bush administration, military defense companies, specifically military defense contractors, faired very well because of the amount of spending that administration did on national defense. With that said, the current Obama administration seems to be less inclined to spend billions of dollars on large military equipment produced by the likes of Lockheed Martin (NYSE: LMT), Northrop Grumman (NYSE: NOC) and Boeing (NYSE: BA) and more inclined to spend money on military devices that will help limit casualties in the field and help advance the way we fight wars. These companies include AeroVironment Inc. (NASDAQ: AVAV), Alliant Techsystems Inc. (NYSE: ATK), and Ceradyne Inc. (NASDAQ: CRDN).

AeroVironment (NASDAQ: AVAV) designs, develops, and produces unmanned aircraft systems for various industries and governmental agencies. Their small unmanned aircraft systems provide intelligence, surveillance, and reconnaissance information which includes combat assessments and geographical data to small tactical units and individual fighters. These aircraft transmit live video and other information to its users so they can make more informed decisions about how safe a general area is. These devices will help save thousands of lives in military combat by making the unknown known while providing little risk to its user. This stock has a very high 19.2% long term growth rate and it selling at around 28 times earnings.

Alliant Techsystems (NYSE: ATK) is the largest supplier of ammunition to the U.S. armed forces and allied nations around the world. This company is the leading provider of advanced and affordable precision munitions and strike weapons that limit the risk of casualties to non-combatants. Alliant Techsystems is on the leading edge in developing new ammunition including air-bursting munitions which explode at a predetermined range. This stock is trading at a mere 9.8 times earnings with a long-term growth rate of 12%, making this company very cheap on an earnings to growth basis. ATK is just one point off its 52-week low of $69.76, making this a good entry point. Alliant Techsystems was recently awarded a $90 million contract from Lockheed Martin to produce solid rocket propulsion systems.

Lastly, Ceradyne Inc. (NASDAQ: CRDN) a leader in advanced technical ceramics for ballistic application. They provide lightweight ceramic body armor for soldiers and other military applications. This body armor exceeds industry standards and achieves the highest durability with no sacrifice to performance. This body armor is tested against the highest demanding conditions and has held up every time. This is the most cost-effective body armor because of the unique plate pressing process and custom molding for soldiers of all shapes and sizes. This company’s stock is ridiculously cheap as it is trading at only 3.8 times earnings and has a 15% long term growth rate. At $17 per share, just 1 point off its 52-week low, this would be a great time to start a position in this stock.

While the Obama administration is looking to spend less money on military defense, there are companies who are developing advanced military technologies that will help cut down on casualties and provide for more efficient and effective military campaigns.