It’s Time to Buy These 2 Defense Stocks

Page 1 of 2

It's Time to Buy These 2 Defense StocksWhatever deal gets struck to resolve the imminent “fiscal cliff,” the U.S. budget mess will be far from fixed. There will still be a yawning gap between government revenue and government spending, let alone the fact that we still have an existing $16 trillion debt load we need to start whittling down.

One of the most vulnerable arms of the federal government will be the Department of Defense (DoD). Our current military is so large — more than 10 times bigger than its nearest rival — that a bit of shrinkage seems inevitable. Nobody is calling for plans to gut our nation’s military in an extreme fashion, but a DoD that is 5% or 10% smaller than current levels seems increasingly inevitable.

And that spells top-line weakness for many defense contractors. A wide range of multibillion contracts with firms such as Lockheed Martin Corporation (NYSE:LMT) and General Dynamics Corporation (NYSE:GD) are coming under tighter scrutiny, as the DoD seeks ways to find less-expensive solutions to fielding a more nimble military.

Out with the bath water
Simply being associated with this sobering trend has been toxic for many defense-oriented stocks. Indeed, a pair of smaller, but more promising defense contractors have been tossed aside. They now trade far from their 52-week highs, even though they represent some of the few growth niches in the military.

I’m talking about iRobot Corporation (NASDAQ:IRBT), which make robotic search and detection devices, and AeroVironment, Inc. (NASDAQ:AVAV), maker of unmanned aerial drones. They also have appealing non-military divisions as well, as I’ll discuss in a moment.

iRobot
One of the charms of working with Uncle Sam and the DoD is that you get paid to do research. iRobot has invoiced the DoD for millions of dollars over the years to develop a range of ruggedized, remote-controlled robots that can safely enter into a battle environment when it’s too risky to send in soldiers. The good news: the company now owns the rights to the knowledge it has accumulated and can parlay that research into other products. You won’t find this spending in the research and development (R&D) line of an income statement, as it is recorded as revenue.

iRobot is augmenting the DoD-funded research with its own funds: Internally-funded R&D has risen from $15 million in 2009 to $36 million in 2011. This spending has helped the company develop an ever-broadening product line, which explains why sales rose from under $150 million in 2005 to $465 million in 2011.

iRobot’s main source of revenue is the PackBot disarming robot, which has already saved countless soldiers’ lives. On the consumer side, the company’s Roomba vacuum cleaner is a top seller, though iRobot is also developing and selling a number of other robotic consumer devices.

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 Worst Mistakes an Entrepreneur Can Make

The 5 Most OP Characters in League of Legends to Carry Games and Crush Foes With

The 5 Best Foods to Eat Before Running that Will Help You Pound the Pavement

10 Glaring Plot Holes in The Walking Dead that a Zombie-Filled Bus Could Drive Through

The 5 Biggest Celebrity Stoners Who Love Their Reefer

The 10 Most Overrated Movies Of All Time by Out-of-Touch Critics

Top 6 Least Expensive Cruise Destinations For 2015 that Will Take You to Paradise

10 States with Lowest Substance Abuse Rates in America

The 14 Most Watched TV Finales Ever

The 10 Best Selling Role Playing Games of All Time for PC

10 Most Influential Papers In Economics

Top 8 Biggest Charities in the US

10 Worst Celebrity Career Moves Ever

Top 10 Best Paid Tennis Stars in the World

10 Cities with High Demand for Nurses

6 of the Worst Greeting Card Messages Ever Crafted

How to Make Money in ArcheAge and Build Your Empire

10 Foods To Eat To Lower Cholesterol Levels

The 10 Most Hated Television Characters of All Time

The 30 Worst Halloween Costume Ideas Ever Brought to Horrible Life

10 Vocational Skills in Demand Today with Jobs Waiting to be Filled

10 Best Places to Visit in Central and South America

The 10 Greatest Empires in History Which Nearly Conquered the World

The 6 Cheapest Boarding Schools In America 2015

5 Clear Reasons LoL is Better than DotA, Continues to Rule MOBAs

The Only 9 Teams with a Chance to Win the Super Bowl

The 15 Most Common Phobias in America that Induce Fits of Panic

Top 6 Least Expensive Tourist Destinations in 2014

Jim Goetz, Peter Fenton, Jim Breyer: Top 6 Venture Investors for 2014

Top 15 Billionaires in 2014

5 Pitfalls To Avoid When Buying a Franchise

Top 20 Medical Schools in the US – 2014 Rankings

4 Business Strategies that Turned Jamie Oliver into the World’s Richest Chef

6 Qualities That Make You A Good Team Player

10 High Paying Seasonal Jobs in America this Holiday Season

The 10 Busiest Shipping Lanes in the World

5 Most Valuable Brands in China

The 10 States with Highest Substance Abuse Rates Crippling Their Populace

The Top 10 Things to Do Before You Die That Will Echo for Eternity

The 10 Best Selling Items on Etsy

Top 10 Things to Do in Tokyo, the Greatest City in the World

10 Mistakes on Social Media that Can Harm You and Will Probably Get You Canned

The 10 Best Cities to Find Jobs in 2014

The 10 Most Controversial Songs Of All Time to Hit (and get Banned from) the Airwaves

The 20 Biggest IPOs in US History

The 10 Best Places to Visit in Mexico that Are Beautiful and Safe

7 Bad Habits that Age You Beyond Your Years

The 40 Best Fortune Cookie Sayings That Will Leave You Bemused, Befuddled, or Beguiled

10 Foods to Eat Before a Workout to Make Every Drop of Sweat Count

The 5 Best Documentaries On Netflix You Must See

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!