Things Look Brighter for Military Contractors in the Stock Market Today and for the Civilian Contractors It's Steady As It Goes.
“Starve no longer; wait no more.”
--Edward D. Abrahams
My older brother Ed, who passed away last year, was a famously loyal University of Connecticut basketball fan. He pined for the day of a UCONN men’s and woman’s double NCAA basketball championship. And one fine day his dreams came true. He told me: “Starve no longer; wait no more.”
It has been more than a year since I reported on the financial performance of the government contracting community in the stock market. You can find my June 28, 2023 blog here: https://www.awrcounsel.com/blog/2023/6/21/working-for-the-man-doesnt-seem-to-be-paying-off-federal-contractors-dont-prove-to-be-good-investments?rq=LOCKHEED%20. That and my prior blogs trace the recent relatively unhappy history of government contractor performance in the stock market.
But as they say the stock market is cyclical. Every dog has it day, and so it seems that 2024 has been a better year for defense contractors. Starve no longer… Without any good ETF proxy to follow, let’s look first at the largest pure government contractor, As of yesterday, mid-day, Bethesda’s own Lockheed-Martin Corporation (symbol: “LMT”) is now up 21.69% so far this year. Those gains exceed the 18.16% S&P 500 tech dominated index gains year to date and thus are pretty respectable. The second biggest government contractor is RTX (formerly known as Raytheon) (and trading under the eponymous stock symbol “RTX” ), is up a whopping 38.37% so far this year to date. I guess furnishing batteries of Patriot Missiles and other armaments to allies and the US military as finally boosted the bottom line. You would think, with a land war in Europe and the tensions in the Middle East, companies like Lockheed and RTX would find a favorable environment to make money. If not now, then when? [I am not even going to peak at Boeings’ stock ticker, given the company’s idiosyncratic challenges.] Of course, I thought that was the case since the Russians invaded Ukraine, and the thesis is only just panning out this year, after these stocks largely languished.
How about civilian contractors? It is a little harder without any index to measure their performance. In my prior blog, I pointed to the then 2023 number four recipient of federal funding, Pfizer (symbol “PFE”), which was down in price. Well, Pfizer continued to collapse in 2023, and is down an additional -2.3% this year. It has lost over 50% of its value since the COVID-19 vaccine fever peak. Dollars for jabs has worn off. Pfizer obviously is its own special story, but in general business stock values outside the magnificent seven or so tech companies haven’t be so bubbly, and perhaps a thousand publicly traded companies are in a funk, many down 70% or more since their stock market peak mostly around February 2022.
Just anecdotally, it is my impression the government contracts community outside the big armaments dealers is just muddling along as usual. Here is what I said back on June 28, 2023:
The new normal is likely the same as the old normal – continued not so inspiring performance by government contractors in the public stock markets. And that is the situation before even the erosion by inflation. It is just a fact, that in 2023, most of the out performance of the stock market has gone to a few technology stocks like Nvidia and Tesla. These riches are not trickling down beyond five or so tech stock names. The narrow breath of the stock rally here in 2023 suggests it might well be short-lived. And in any case, there seems to be no room at the inn for the government contracting community.
I am thinking a recession, which the consensus no longer thinks is imminent, is what it will take before investors start thinking about government contractors as opposed to the mania in tech stock names.
https://www.awrcounsel.com/blog/2023/6/21/working-for-the-man-doesnt-seem-to-be-paying-off-federal-contractors-dont-prove-to-be-good-investments?rq=LOCKHEED%20. I am sticking by my prediction. I may have been a little early, but I have yet to be proven wrong. As Yogi Berra famously said: “It is tough to make predictions, especially about the future.”