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New contracts are huge catalysts, or "sparks," for companies that land them with the government. When analysts get wind of the pending business, they can send earnings estimates – and stock prices – rocketing skyward.
Lockheed Martin, Northrup Grumman, and Boeing have been playing the game for decades, and winning it.
But the money isn't reserved just for the big boys. Hundreds of small companies get a piece of the pie as well.
You can find these sparks everywhere.
And some of them even give you a chance to boost your "tax refund," too… as you'll see.
In fact, the big-money contracts don't even have to come from the government.
Sparks Are Flying All Over the Private Sector, Too
A great recent example is Cirrus Logic Ltd. (Nasdaq: CRUS). The company develops high-precision analog and mixed-signal integrated circuits for smartphones, tablets, personal computers, and automotive entertainment.
In the case of CRUS, its key contract was with Apple Inc. (Nasdaq: AAPL) to provide audio chipsets for the iPad. Yeah, that's a big contract.
With more than 170 million iPads sold worldwide, that's a heckuva a lot of Cirrus chipsets – and an enormous boost to the company's top line.
Since Apple released its first iPad in April 2010, Cirrus' top line has experienced average annual growth of 50%, reaching $809.79 million by the end of fiscal 2013.
During the same time period, CRUS rocketed ahead more than 370% in less than 30 months. The stock has pulled back significantly over the last year as traders digest, slowing Apple growth – but investors who strategically harvested gains along the way could have created a "free trade" by selling half of the position after the first 100% gain, and then sold half of the remaining shares at 200% and again at 300% – pocketing profits along the way and smiling all the way to the bank.
But not every key customer has to come from the private sector. Sometimes, it's your own tax dollars that fund a key contract that can lead to huge profits.
One Spark Even the IRS Can't Extinguish
These sparks are my personal favorites because it feels like I'm giving myself a healthy tax refund check – the government takes from me, and I take it right back, via market gains.
Here's a scenario that created a great spark for the right investors…
In 2006, U.S. troops in Afghanistan and Iraq were increasingly being targeted by roadside bombs, and existing U.S. military vehicles were not providing the necessary protections.
In July 2006, the military reported approximately 2,625 bombs either exploded or discovered before they could detonate, which at the time represented an 80% increase from the 1,454 reported in January 2006.
Clearly, the Defense Department had a problem, and they were willing to pay for an effective solution. This amounts to a critical government contract – one that has to be met – no matter how dysfunctional our elected leaders might be now, or then.
Based in Ladson, S.C., Force Protection Inc. (Nasdaq: FRPT) met the Defense Department's need with two series of armored vehicles, the Buffalo and Cougar, which were designed to detect IEDs and landmines and serve as personal transports.
The Buffalo and Cougar were different from their predecessors because they employed a V-shaped hull design, which allowed the vehicles to better disperse the force of an IED blast.
They proved very effective, the DOD started ordering the vehicles, and Force Protection's stock shot up over 775% (in less than 7 months) in 2006.
Eventually, the company merged with General Dynamics Corporation (NYSE: GD) – but early investors who understood what to look for were able to make a huge profit, very quickly, by paying attention to where DOD money was being deployed.
Sometimes the sparks come from smaller companies…
That's the case with Kratos Defense & Security Solutions Inc. (NASDAQ: KTOS), which provides mission critical engineering, IT services, and war fighter solutions for the U.S. federal government and for state and local agencies
Analysts took notice that the company continued to secure a steady string of smaller contracts – even in the face of Washington budget battles – and the stock more than doubled in the first nine months of 2013.
And here's the best part…
The Critical "Flint" Will Be Igniting Triple-Digit Gains Forever
For all the political theater in Washington, they are still willing to pay for programs that they feel are critical. That's means specialty high-tech weapons programs and intelligence programs are going to remain funded while older or outdated military and intelligence operations get axed.
Case in point… back in July 2011, when analysts were slapping sell ratings on defense contractors because they believed the government was going to pull the plug on funding, Keith Fitz-Gerald, Chief Investment Strategist at Money Map Press, recommended that subscribers of the Money Map Report buy shares of Raytheon Company (NYSE: RTN).
Since his recommendation, Raytheon has gained more than 104% – all in the face of ongoing threats to cut government spending.
Fitz-Gerald's was a simple one. Raytheon delivers very effective high-tech missile systems that can be deployed from aircraft or by ship with no need to deploy ground troops – or spend the exhaustive amount of money necessary to deploy ground troops. That amounts to a cost savings to the military. Therefore, the Defense Department can maintain it readiness with state of the art technology – and it can save money be avoiding needing to rely on older military options.
In the case of Raytheon and Kratos, both met a critical government need – and led to triple-digit gains.
About the Author
Sid is the investment community's best-kept secret. Since 2009, he's served at Money Map Press as Director of Research, analyzing thousands of securities and profit opportunities for subscribers. He's an expert in identifying "alpha" potential in a wide variety of industries, but especially the small-cap sector, where he's discovered a pattern of profits that's almost foolproof.