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Pentagon Insider: Guess Who Won $400 Million in Defense Contracts Yesterday?

For many investors, the U.S. government seems a black box. Taxes go in, spending comes out — but with the exception of the occasional headline-grabbing megacontract, where the spending goes, and how much is going to whom, remains very much a mystery.

Except that sometimes, if you look very carefully, and know where to look, you can sometimes get a glimpse at where the money is going. And believe it or not, one of the easiest places to take a good peek at how the U.S. government spends its money is at… the U.S. Pentagon.

Every day of the week, the Department of Defense publishes a detailed list of every contract it’s awarded that day, larger than $6.5 million in size. In today’s column, we’ll examine the spending for Wednesday, May 28, 2015 — and specifically, the top three contracts awarded to publicly-traded companies.

Wednesday’s top 3
The Department of Defense awarded 10 contracts worth a combined $400 million on Wednesday. The top three winners (that you can invest in) were:

Bell/Boeing Joint Program Office, the joint venture between Textron (NYSE:TXT) and Boeing (NYSE:BA) that builds the V-22 Osprey tiltrotor aircraft. The JPO was awarded a $38.4 million contract modification to pay for repair parts needed for U.S. Navy Ospreys. Deliveries are due to be completed in December 2017.

General Dynamics (NYSE:GD), whose Electric Boat subsidiary won a $46.4 million contract to plan maintenance, upgrades, and modernization work on the nuclear fast-attack submarine USS Montpelier (SSN 765). This contract will run through February 2018.

And finally, the day’s big award went to Young & Rubicam, a subsidiary of British advertising agency WPP Group plc (NASDAQ:WPPGY). For $84.4 million, the firm will perform “advertising and marketing services” for the U.S. Navy through at least July 2016. This contract may be extended by as much as four one-year “options,” however. If all options are exercised, WPP could be in line to collect as much as $457.5 million for its services through July 2020.

With annual revenues of $17.5 billion, WPP is actually a bigger business than “traditional” defense contractor Textron. With a net profit margin of 9.3%, it’s also more profitable (per dollar of revenue collected) than any traditional defense contractor on today’s list.

Insider trading notes
According to Insider Monkey’s database, more insiders have been selling shares of both Boeing and General Dynamics over the past three months, than have been buying. Insiders at Textron didn’t have any recent open market purchases, and there is no data on insider trading in WPP, which trades only as an American Depositary Share in the U.S.


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