Author Topic: Defense contractors  (Read 2968 times)

KJP

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Re: Defense contractors
« Reply #10 on: March 29, 2020, 08:44:09 AM »
Disclosure: Department of defense contractors are on a long term watchlist and would make them easily 10% of invested funds if the price is right. i may contribute to this discussion more fully in due course.

IMO, the pension issue is very significant. I guess it has the potential to be smoothed away over time but the potential long term cash flow implications are significant.
If interested:
https://www.gao.gov/assets/660/651387.pdf
https://us.milliman.com/insight/Pension-Funding-Index-March-2020

I agree on both points.  Given the size of the pensions here, and how they impact reported financials, I'm doing more reading to understand how they work.  As for price, I believe current prices still reflect a bullish take on future military spending, in contrast to the multiples you had in 2011/12.
« Last Edit: March 29, 2020, 08:48:56 AM by KJP »


sleepydragon

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Re: Defense contractors
« Reply #11 on: May 29, 2020, 06:49:20 AM »
Seems these defense companies employ way too many people...
Maybe they have problems to lay-off people as govt contractor.
HII for example is 8bn mktcap but employ 40k. Thatís only 200k revenue per employee.
Google, Visa etc is at least 10 times that
Even banks are higher.

scorpioncapital

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Re: Defense contractors
« Reply #12 on: May 29, 2020, 07:38:49 AM »
depends which one.. LMT for example is about 550k per employee. But you cannot compare a capital intensive business with an asset lite cloud stock like Google. Boeing also has very large pension liabilities. They are on the balance sheet. I think the return expectations on the pensions are like 7-8% depending which company you look at. You can judge if this is crazy or not. Also many have gone to no more pensions but a kind of self directed retirement plan with some matching funds. Otherwise they'd go bankrupt like the US car manufacturers.

KJP

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Re: Defense contractors
« Reply #13 on: May 29, 2020, 08:24:17 AM »
Seems these defense companies employ way too many people...
Maybe they have problems to lay-off people as govt contractor.
HII for example is 8bn mktcap but employ 40k. Thatís only 200k revenue per employee.
Google, Visa etc is at least 10 times that
Even banks are higher.

Why would you expect the revenue per employee at company that builds submarines and aircraft carriers (Huntington Ingalls) to resemble the revenue per employee at companies like Visa or Google? 

Put another way, the output of an a hour's worth of very highly-skilled software coding (i.e., code may be used and resold an infinite number of times -- labor output is highly scalable.  On other other hand, the output of an hour's worth of a very highly-skilled welding creates a physical product that can only be sold once.  The labor output is not scalable in the same way.  So why would you expect the labor components of the two business models to be in any way comparable?

Jurgis

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Re: Defense contractors
« Reply #14 on: May 29, 2020, 11:22:20 AM »
They should have robots building submarines, aircraft carriers and fighter jets with automatic weapon systems.





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scorpioncapital

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Re: Defense contractors
« Reply #15 on: May 29, 2020, 02:51:39 PM »
What one should compare is the intangible moat quality of Google vs mandatory defense spending. Even Libertarians would agree national defense is a primary function of the state. But which is the stronger moat? Google may have anti-trust issues. Government military spending may be cut.

Spekulatius

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Re: Defense contractors
« Reply #16 on: May 29, 2020, 04:05:27 PM »
What one should compare is the intangible moat quality of Google vs mandatory defense spending. Even Libertarians would agree national defense is a primary function of the state. But which is the stronger moat? Google may have anti-trust issues. Government military spending may be cut.

Defense spending as a % of GDP has slowly been going down over time, however it also has become more high tech. So less boots on the ground (salaries to pay) and more expensive toys. The last few years have been great for defense Companies. I expect that Russia and China which both are modernizing their military are keeping us on our toes. You canít really keep a reserve currency without projecting power, imo. Itís a necessity for us to remain the strongest and most capable military power.
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K2SO

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Re: Defense contractors
« Reply #18 on: June 23, 2020, 12:22:08 PM »
What's so unethical about the defense of nations?

Nothing unethical about "defense."
Athough it's a bit of Orwellian wordplay since these tools are just as often used for "offense."
And people die because of them.

Personally I have no ethical issue owning the stocks, but other people do, and I respect that.

Spekulatius

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Re: Defense contractors
« Reply #19 on: June 23, 2020, 03:47:20 PM »
I recently (and today) added to NOC. They are sort of the sole bidder on two huge contracts coming up - the B-21 stealth bomber and the GBDS (intercontinental nuclear missiles). The US ground based nuclear missiles are dated and probably need to be replaced (unless the US is shelving this which is unlikely) since it pre Cold War and was out in place in the 1970ís. Twos programs are $60-70B in Size which is substantial for ~$36B company like NOC.

Other stocks in my watchlist are $LHX (strong in sensors and electronics ), Shipbuilder HII (cheap, but somewhat of a low tech metal fabricator ) and $LMT.
Life is too short for cheap beer and wine.