Small is better
Kratos Defense & Security Solutions, Inc (NASDAQ:KTOS) can probably weather the storm better than a company like Raytheon Company (NYSE:RTN), only because it has less eyes on it. Raytheon is doing a good job of handling the spending cuts. In April, the company narrowed its range of revenue, but it was still within analyst expectations. The stock has performed admirably, and that is why I would rather go with Kratos. Raytheon’s future is baked into its stock, and now it’s probably too late to benefit. Kratos needs less money to make a difference. Raytheon Company (NYSE:RTN) would suffer more if government tightening goes further.
If you want to own a stock that benefits from defense, but is fit to hold long-term, you can go with The Boeing Company (NYSE:BA). The company’s stock has done very well, and I do think a breather is necessary. The Boeing Company (NYSE:BA) handled the battery issue, and there are always going to be problems with new planes, and the fairly rapid uptake of the new plane early in its design is a sign of the demand for new planes.
The Dreamliner problems would not be news if it had only been a few planes sold at the beginning. Planes generally have a 20-25 year lifespan, and the design has a longer life. The Boeing Company (NYSE:BA) is a good stock that mixes defense and commercial demand. Net income and revenue are holding solid, and I think revenue will accelerate as more orders for Dreamliners come in.
Conclusion
I like stocks that have the potential for large and possibly fast gains, meaning the movement occurs in a short-period of time even if it takes one year for that to happen. Kratos Defense & Security Solutions, Inc (NASDAQ:KTOS) fits that the best. As the company reports better and better earnings, it might attract attention that could send the stock higher. There is potential there and the company is making a profit if you ignore amortization, which is non-cash. Kratos Defense & Security Solutions, Inc (NASDAQ:KTOS) is small enough that its lack of attention is understandable. The company does not need much from shrinking government budgets to really make a difference to its growth.
Nihar Patel has no position in any stocks mentioned. The Motley Fool owns shares of Raytheon Company. Nihar is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
The article Defense and Security Will Be Mainstays Despite Cuts originally appeared on Fool.com is written by Nihar Patel.
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