War Stocks

Editors Note: I have received numerous emails from members suggesting that I explore war related equity issues. Since this is a financial/econmic newsletter, and the war(s) is one of our basic forums, this does make sense. The following is a basket of five companies whose bottom lines depend on defence contracts.

Although I am discouraged by the current situation in the middle east, it stands to reason that the war machine is very profitable. After all, some of the richest people in the world have been supporting both sides of every conflict for years. War is probably the most lucrative issue that has ever been exploited. -JSB

Boeing (BA)

Boeing is probably best known for making commercial jet airplanes, but 40% its annual revenue is generated from the sale of military aircraft, missiles, lasers, guidance systems, and the like. The company's Joint Direct Attack Munition (JDAM) was such a big hit in Afghanistan that it can hardly keep up with orders from the Air Force and Navy. Also, through its Phantom Works division, Boeing has become the industry leader in the development of Unmanned Combat Aerial Vehicles (UCAVs) such as the extremely cool X-45, which will be a lucrative line of business in the age of robotic warfare.

Political Connections

• Richard Armitage - State, Deputy Secretary | President and partner, Armitage Assoc. LLP, a Boeing consultant

• Karl Rove - White House, Senior Advisor to the President | Shareholder

2000 Lobbyist Spending: $7,820,000

2001/2002 Contributions: $1,470,474

Targeted Contributions:

House:

• John Murtha (D-PA) - Appropriations Committee (Defense Subcommittee, Ranking Member) | $27,349 of contributions in last election cycle (Boeing ranks #4 of Mr. Murtha's contributors)
• Jim Moran (D-VA) - Appropriations (Defense) | $21,850 (#1)
• Norm Dicks (D-WA) - Appropriations (Defense) | $14,000 (#1)

• Ted Stevens (R-AK) - Chairman, Appropriations | $34,400 (#1)

Northrop Grumman (NOC)

Northrop Grumman is positioned to profit nicely from the War on Terror. The company is the prime contractor on the B2, and a major subcontractor on both the F-18E/F and the new Joint Strike Fighter. Northrop Grumman makes the unmanned Global Hawk (which got rave reviews in Afghanistan), is building the X-47 UCAV for the Navy, and, like Boeing, has a strong UCAV program. The best thing about owning this company, however, is its strong connections with current officials in the Bush administration (the secretary of the Air Force is a former Northrop Grumman president, for crying out loud), and its well-targeted campaign contributions to key members of both the House and Senate Armed Services Committees.

Political Connections

• I. Lewis Libby - White House, Chief to the President | Consultant

• Dov Zakheim - Defense; Under Secretary for Comptroller | Paid advisory board
• Douglas J. Feith - Defense; Under Secretary for Policy | President and managing partner of former law firm, Feith & Zell; clients include Northrop Grumman
• Paul Wolfowitz - Defense; Deputy Secretary | Consultant
• James Roche - Air Force; Secretary | Former president
• Nelson F. Gibbs - Air Force; Assistant Secretary for Installations, Environment and Logistics | Former corporate comptroller
• Sean O'Keefe - NASA Administrator | Paid advisory board

2000 Lobbyist Spending: $6,882,720

2001/2002 Contributions: $1,181,280

Targeted Contributions:

House:

• Bob Stump (R-AZ) - Chairman, Armed Services | $12,000 (#1)
• Ike Skelton (D-MO) - Ranking Member, Armed Services | $17,000 (#1)
• Duncan Hunter (R-CA) - Armed Services | $15,990 (#1)
• Jerry Lewis (R-CA) - Appropriations (Defense, Chairman) | $11,990 (#1)

Senate:

• Trent Lott (R-MS) - Majority Leader | $20,000 (#1)
• John Warner (R-VA) - Chairman, Armed Services | $22,450 (#1)
• Ted Stevens (R-AK) - Chairman, Appropriations | $18,000 (#5)

Raytheon (RTN)

Raytheon is best known for its Tomahawk cruise missile, the preferred method for getting any party started. Each missile costs $2M. The company also makes the Paveway series of laser-guided bombs (LGBs), used widely in Afghanistan, and the 5,000-pound GBU-28 "Bunker Buster" that comes in handy when trying to dislodge rogue dictators and terrorist masterminds.

Political Connections

• Richard Armitage - State, Deputy Secretary | President and partner, Armitage Assoc. LLP, a Raytheon consultant; Advisory board member
• Sean O'Keefe - Office of Management and Budget; Deputy Director | Strategy advisory board member

2000 Lobbyist Spending: $2,320,000

2001/2002 Contributions: $824,406

Targeted Contributions:

House:

• Bob Stump (R-AZ) $2,000 (#9)
• Ike Skelton (D-MO) $6,000 (#8)

Senate:

• Edward Kennedy (D-MA) - Armed Services | $35,775 (#2)

Lockheed Martin (LMT)

As the worlds's largest defense contractor, Lockheed Martin is an important part of any Perpetual War Portfolio. The company has an excellent suite of products to make war, from the new Joint Strike Fighter, to the Hellfire missile, to the widely popular BLU-109 warhead. Lockheed Martin is also the industry leader in lobbying expenditures, campaign contributions, and two of its former executives are in leadership positions at the Air Force and Navy.

Political Connections

• Lynn Cheney - Wife of the Vice President | Director
• Stephen Hadley - White House; Deputy National Security Adviser | Partner, Shea and Gardner, law firm representing Lockheed Martin
• Peter B. Teets - Air Force; Assistant Secretary | Former CEO
• Gordon England - Navy; Secretary | Former President
• Everet Beckner - Energy; Administrator for Defense Programs | Former Vice President
• Otto Reich - State; Assistant Secretary for Latin America | Paid Consultant
• Norman Mineta - Transportation; Secretary | Former Vice President; Shareholder
• Michael Jackson - Transportation; Deputy Secretary | Former Vice President; Former COO Lockheed Information and Management Services; Shareholder
• Larry C. Johnson - Justice; Deputy Attorney General | Partner at Atlanta law firm of King & Spalding, client to Lockheed

2000 Lobbyist Spending: $9,740,000

2001/2002 Contributions: $1,678,098

Targeted Contributions:

House:

• Bob Stump (R-AZ) $5,000 (#3)
• Ike Skelton (D-MO) $11,000 (#3)
• John Murtha (D-PA) $40,050 (#2)

Senate:

• John Warner (R-VA) $21,000 (#3)
• Wayne Allard (R-CO) - Armed Services - $17,500 (#2)
• Ted Stevens (R-AK) - Chairman, Appropriations | $21,500 (#4)

Alliant Techsystems (ATK)

I normally only like mega-cap stocks like Boeing and Lockheed Martin, but smallish Minnesota-based Alliant Techsystems is a deserving member of this group. The company is the largest supplier of ammunition to the US military, its largest supplier of cluster bombs, and provides propulsion and structures for many of the missile and aircraft systems listed above.

David E. Jeremiah Vice Chairman of the President's Foreign Intelligence Advisory Board | Board of Directors

2000 Lobbyist Spending: $460,000

2001/2002 Contributions: $135,960

Targeted Contributions:

House:

• Ike Skelton (D-MO) $4,000 (#18)

SOURCES

• Defense contractors' web sites
• Globalsecurity.org
• Opensecrets.org
• "Bush Top 100" at the Center for Public Integrity
• William D. Hartung, "About Face: The Role of the Arms Lobby in the Bush Administration's Radical Reversal of U.S. Nuclear Policy," World Policy Institute [May 2002]