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.
BAE and Rockwell Collins win big
According to the Department of Defense’s latest daily update, the Pentagon handed out $856 million in new contracts Tuesday. Luckily for investors, the two largest of these contracts — amounting to $663 million in combined value, or 77% of all contract value awarded — both went to publicly traded firms. Specifically:
In the day’s largest award, Data Link Solutions LLC, a joint venture between BAE Systems (NasdaqOTH:BAESY) and Rockwell Collins (NYSE:COL), won a contract worth up to $478.6 million to develop, produce, and sustain Multifunctional Information Distribution System (MIDS) Joint Tactical Radio System (JTRS) terminals for the U.S. Navy. The Pentagon describes MIDS JTRS as a four-channel, line-of-sight, jam-resistant, software-defined radio that enables secure data and voice communication “across a variety of air, sea and ground platforms.” Once operational, MIDS JTRS will be rolled out not just to U.S. forces, but distributed to allied militaries in Australia, Austria, Canada, Chile, Finland, Israel, Jordan, Japan, Kuwait, Malaysia, Morocco, New Zealand, Oman, Pakistan, Qatar, South Korea, Saudi Arabia, Singapore, Sweden, Switzerland, Taiwan, Thailand, the United Arab Emirates, the United Kingdom — and indeed, to all NATO nations.
(In short, this contract is a very big deal for BAE and Rockwell Collins).
Separately, truckmaker Oshkosh (NYSE:OSK) won the day’s second largest award. Worth $184.4 million, this contract awards Oshkosh additional funds for the production of 698 Family of Medium Tactical Vehicles trucks for the U.S. Army.
Insider trading notes
Tuesday’s contract win notwithstanding, Form 4 filings with the SEC show insider trading activity at Rockwell Collins to be unencouraging of late. (As a foreign filer, data on insider transactions in BAE is hard to come by). Over the past three months, Rockwell Collins stock has seen 12 insider sales versus just five insider purchases. What’s more, the size of the sales greatly outweighs the size of the purchases, with net sales totaling 149,408 shares during the period.
Similarly, shares sold by insiders outweigh shares bought at Oshkosh (by 67,430 shares over the past three months). Total buy transactions, however, outnumber total insider sales 11 to six.
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