What Covestor managers are buying: Northrop Grumman (NOC)


Covestor model manager Fat Pitch Financials focuses on special situation stocks and is a value investor. George Silva runs the company and is an economist who did his undergraduate degree at Cornell University and his Masters at Yale University. George has twenty years of experience investing in individual stocks. He

uses a bottom-up approach to examining companies. George evaluates the fundamentals of a business to estimate the underlying intrinsic value of its stock. Sifting through reams of securities filing with a unique eye for relatively low risk value opportunities provides a majority of the best investment ideas.

George runs Covestor’s Workouts model which

invests in workouts. Workouts are special situations where a corporate event sets the future value of a security. Such events include mergers, tender offers, going private transactions, liquidations, and the like. This model will take advantage of these arbitrage opportunities without using margin or short positions.


On 3/28, Silva bought Northrup Grumman (NYSE: NOC), the integrated defense contractor that has businesses spanning the global security spectrum, from undersea to outer space and into cyberspace. The Motley Fool recently asked whether NOC would pass one of Warren Buffett’s tests:

Northrop has shown steady improvement across the last five years, as has Raytheon, suggesting improvement in their competitive positions. Lockheed has declined from three years ago, but it remains solidly above its 11.2% figure from five years ago.

Businesses with consistently high ROIC prove that they’re efficiently using capital. They also have the ability to treat shareholders well, because they can use their extra cash to pay dividends, buy back shares, or further invest in their franchises. And anyone who knows Warren Buffett knows he loves healthy and growing dividends.

Note also that NOC recently won a US Navy contract:

Northrop Grumman Corporation subsidiary AMSEC LLC, was one of two contractors awarded a contract by the U.S. Navy for marine design and engineering services in support of Puget Sound and Pearl Harbor Naval Shipyards (PSNS) and Intermediate Maintenance Facilities (IMF).

This indefinite delivery, indefinite quantity, cost plus fixed fee contract contains a base period with four one-year option periods. If all options are exercised, the total value for AMSEC would be approximately $40.2 million.

Here’s NOC’s performance over the past year, via Google Finance:

 

Sources:

“Do These Defense Contractors Pass Buffett’s Test?” Jim Royal. Motley Fool, 3/29. http://www.fool.com/investing/value/2011/03/29/do-these-defense-contractors-pass-buffetts-test.aspx

“Northrop Grumman’s AMSEC LLC Wins U.S. Navy Marine Design and Engineering Services Contract” Northrop Grumman. 3/29. http://finance.yahoo.com/news/Northrop-Grummans-AMSEC-LLC-pz-1162138502.html