Northrop Grumman Corporation (NYSE:NOC) got its start as an aerospace and defense firm in WWII building bombers for the Norwegians.
Both Northrop Aircraft and Grumman Corporation merged in 1994 to become a powerful aerospace firm that has continued to push the limits of flight and their underlying technologies ever since.
And over the years, NOC has focused on what it does best, rather than trying to grab up second- and third-tier defense firms to diversify its business.
This has kept it a strong competitor in its core areas — aerospace, C5ISR (command, control, computing, communications, combat systems, intelligence, surveillance, reconnaissance) and drones. While Boeing Co (NYSE:BA) and Lockheed Martin Corporation (NYSE:LMT) have chosen to diversify their businesses into everything from border walls to traffic light cameras, NOC has stuck to its knitting.
And from its Q1 numbers released in last April, it’s succeeding. NOC’s revenues and earnings beat analysts expectations handily and it even raised guidance for the rest of the year.
Part of the good news came from the tax breaks signed into law in December. But another aspect to its strategy is precisely what it has been quietly doing for years, except on a more focused basis — going for contracts it can win and that will be most effective.
You see, sometimes defense firms win big, headline-grabbing contracts, like NOC’s next-generation $564 million bomber, the B-21 Raider. The initial order is for around 100 bombers, with the total nearly double that order over the next several years.
While that is a major order, it may not be the most profitable project since it involves enormous amounts of project management, scores of subcontractors and scrupulous review throughout the entire process.
Even if there are cost overruns, which there usually are, it isn’t money that goes into NOC’s pockets. These are prestige contracts and certainly help keep the doors open, but these aren’t where the real money is made.
It’s the niche contracts that are more lucrative, where parts and equipment are constantly reordered and routine maintenance is needed. It’s like a car dealership. You make a little off the car, but you make the big money on servicing the car.
So, NOC announced that it wasn’t going to bid on some contract that were up for renewal and it wasn’t going to bid against competitors on other contracts where there wasn’t enough margin to make it worth the effort.
The markets didn’t like that.
The stock sold off.
And now there’s great opportunity to buy one of the best long-term growth stocks around. Plus, when you look at rising turmoil in the middle east and saber rattling in Asia, readiness will be an important theme for the military. And that’s great business for NOC.
Louis Navellier is a renowned growth investor. He is the editor of five investing newsletters: Blue Chip Growth, Emerging Growth, Ultimate Growth, Family Trust and Platinum Growth. His most popular service, Blue Chip Growth, has a track record of beating the market 3:1 over the last 14 years. He uses a combination of quantitative and fundamental analysis to identify market-beating stocks. Mr. Navellier has made his proven formula accessible to investors via his free, online stock rating tool, PortfolioGrader.com. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.
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