How Will the Sequester Hit Defense Stocks? Lockheed Martin Corporation (LMT), Northrop Grumman Corporation (NOC)

Page 1 of 2

So we’re a little more than a month away from yet another round of Capitol Hill-induced economic chaos. I’m speaking of course, about the reappearing sequestration. The sequester is a set of automatically occurring cuts to federal spending that will hit both defense and social budget items. The idea was to make the cuts so horrible that the politicians on Capitol Hill would work hard to avoid them.

Building my Dividend Porfolio - Lockheed Martin (LMT)We know, now, that they can’t avoid them. All they did at New Year’s Day was to kick the can down the road again. Worse, they didn’t even kick it very far. We’re just come off the last round of panicky negotiations and in March the sequester is back. And defense contractors, the companies that benefit most from federal spending, are beginning to both sweat the sequester and prepare for it.

It can’t be an easy thing for a large company, with tens of thousands of employees, to contemplate seeing a huge chuck of your business suddenly drying up because someone else can’t do their jobs. But that’s the situation in which they find themselves. They can lobby, the can have trade associations like the Aerospace Industries Association complain and moan, but nothing’s going to do any good. At best, at this point, it seems we can only hope for a series of short-term actions. It makes it difficult to plan.

Lockheed Martin Corporation (NYSE:LMT)

CEO Marillyn Hewson recently told analysts that upcoming defense cuts (which I wrote about earlier) will hurt the company. However, she and her team are denying that the sequester will actually go into effect. She may be right, as congress continually passes the buck. But ongoing uncertainty can only hurt the firm’s stock price going forward. The firm does have a very high dividend yield at 5.21%, but a part of that calculation is the drop lately in the price forcing the yield up. Lockheed Martin provides more than federal contracts, of course, but it’s a big part of the business. They could be hurt if the sequester comes about.

Booz Allen Hamilton Holdong Corporation  (NYSE:BAH)

Many people don’t think of Booz Allen Hamilton as a provider of defense services. Yet they are a defense contractor, make no doubt. They’re just going to have access to better accounting practices to deal with the uncertainty of the sequester should it come about. The firm’s stock has had a rough run, dropping more than 30% in one day in September. It also say 3Q profits and revenue decline. For the moment, the news and the uncertainty should be pushing you away from BAH. Even with a 2.61% dividend you’d do better somewhere else.

Page 1 of 2
blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

The 10 Countries with the Highest Suicide Rates

The 10 Most Technologically Advanced Countries in the World

The 10 Safest Countries in the World to Live in Peace

The 10 Top Selling Smartphones in the World 2014

The 12 Biggest Shopping Centers in the World

The 10 Friendliest Countries in the World

Qihoo 360 Technology Co Ltd (QIHU), Actavis plc (ACT), Yahoo! Inc. (YHOO) Among 20 Long Ideas from Sohn Canada

The 10 Laziest Countries in the World

The 10 Most Polluted Countries in the World

The 10 Most Dangerous Cities in America 2014

The Top 10 Gold Producing Countries in the World

The 10 Tallest Buildings in the World

The 10 Richest Stand Up Comedians in the World

The 10 Fattest Countries in the World

The 5 Best Summer Jobs for Teens

The 10 Most Religious Countries in the World Keeping the Faith

The 10 Most Educated Countries in the World

The 10 Most Popular Cell Phones in the World

The 10 Drunkest Countries in the World

The 10 Most Expensive Private Schools in the World

The 10 Smallest Countries in the World

Walking Dead Season 5 Spoilers You’ll Wish You Didn’t Know

The 10 Poorest Countries in the World

The 10 Greenest Countries in the World

The Top 10 Countries with the Highest Population in the World

The 10 Most Visited Countries in the World

The Top 10 Star Wars Characters in the Iconic Series

The 10 Most Expensive Android Phones in the World

5 Reasons Why The Illuminati Is Real and a Threat to Society

The 6 Scariest Halloween Costumes Ever Screamed At

The 4 Biggest Hedge Fund Managers in the World Today

The 15 Most Densely Populated Countries in the World

The 10 Biggest Tea Drinking Countries in the World

Top 6 Ways to Improve Your Checkout Process and Close Sales

The 5 Most Profitable Online Businesses You Can Start Today

The 20 Most Profitable Hospitals in the US

The 5 Most Profitable Home Businesses to Start

The 7 Teams that Will Win the Stanley Cup in 2015

The Top 10 Most Expensive Digital Cameras to Snap Stunning Shots With

The 10 Highest Quality Fast Food Restaurants In America Today

The 8 Best Halloween Decorating Ideas to Spook Up Your House

10 Marvel Women that Should Get a Movie Right Now

The 20 Best Remixes of Popular Songs that Will Make You Forget the Originals

7 Most Expensive Cities in the World

5 Least Expensive Cities in the World

10 Celebrities Who Believe In Scientology

10 High Margin Food Products to Build a Business Around

The 10 Most Expensive Clothing Stores in the United States to Get Decked Out At

The 5 Biggest Kickstarter Scams That Swindled Backers’ Donations

The 10 Most Expensive Boarding Schools In the World

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!