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 goes to whom, remains very much a mystery.
But if you look very carefully (and know where to look), you can sometimes get a glimpse at where the money is going. Believe it or not, one of the easiest places to spy on government spending is… the U.S. Pentagon.
An unlikely “defense” contractor
The U.S. Department of Defense awarded a total of $324 million worth of contracts Monday, spread across 10 separate contracts. Two of these were of significant size:
Metals USA, since 2013 a subsidiary of Reliance Steel & Aluminum (NYSE:RS), was awarded a fixed-price with economic-adjustment, indefinite-delivery/indefinite-quantity contract to supply the U.S. Defense Logistics Agency with up to $120 million worth of “metals, metal products and incidental services” through June 7, 2020.
Separately, the Javelin Joint Venture between Raytheon (NYSE:RTN) and Lockheed Martin (NYSE:LMT), which manufactures Javelin light anti-tank weapons, won the day’s second largest award. Valued at $70.2 million, this foreign military sales contract “definitizes” (i.e. sets a final value for) prior-year Javelin orders by the armies of Estonia, Indonesia, Ireland, Jordan, Lithuania, New Zealand, Oman, and Qatar.
Insider trading notes
Over the past three months, insider trading activity at Lockheed Martin has been negative, with more sells than buys recorded, and more shares sold than bought. Insider trading of BAE, a London-listed equity, is unknown. But Raytheon is the exception.
The past three months have seen significant numbers of both insider purchases and sales at Raytheon. And while sales outnumber purchases slightly, the total number of shares sold exceeds the number of shares bought by 30,552. Incidentally, this marks a turnaround from the trend of the past 12 months, which had seen sell orders outnumber buys by nearly two-to-one, with significantly more shares sold than bought as well.
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