An Updated Look at Government Defense Spending


In front of a crowd of cadets at West Point Military Academy last Tuesday, President Obama signaled for the escalation of the war in Afghanistan that most of us saw coming many miles away. This escalation, dubbed Obama’s “surge” by some (including myself, apparently) is set to consist of 30,000 additional troops on the ground, all of whom are scheduled to arrive by next summer.

Not one to sell himself short, Pres. Obama has outlined an equally ambitious plan to begin drawing troops out of the Afghan countryside within 18 months. So the big question remains, which companies are best positioned to profit off of this approx. 2-year military frenzy?

Because the President decided to go down the mega-troop-influx route rather than the special forces-based route that was supported by Vice President Joe Biden, the beneficiaries should be the suppliers of conventional warfare.

Among them are Alliant Techsystems (ATK), which already has a contract to provide munitions to the Afghan forces, General Dynamics (GD), which provides primarily armored vehicles and ammunition, and L-3 Communications (LVLT), which is “looking to renew an agreement to support special operations forces that’s worth $500 million a year.”

In addition to suppliers of warfare, battlefield contractors are poised to profit from Obama’s surge as well. These contractors aren’t the paramilitary contractors that have made headlines in past, but rather the contractors that “will continue to provide a wide range of tasks essential for operations including maintenance, construction, transportation, security and base support.” And considering the lack of viable infrastructure in Afghanistan, there should be a fair amount of money ready to go around.

Two companies perhaps best positioned to profit in this respect are Fluor Corp. (FLR) and DynCorp International Inc. (DCP). The two hold “what is effectively the biggest Defense Department contract supporting U.S. forces in Afghanistan which could be worth as much as $7.5 billion to each company in the coming years.”

All of the companies mentioned herein are almost certain to benefit from the surge in Afghanistan, but what is actually certain is that there will be many more as well. So, keep your eyes peeled and keep up on the news and you’re sure to find a winner or two.

Disclosure: No holdings in the companies mentioned.

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