Move Up Trailing Stops in ADG and DCO

In last week's weekly issue, I advised you put a 15% trailing stop in two of our defense stock positions, Allied Defense Group (ADG) and Ducommun (DCO). Move them up again. Incidentally, the capital goods sector of the market has been strong in the last half year. GE is up 27%. John Deere is up 34%. And even Tyco has come on nicely to rise 34%. The notable exceptions have been major aerospace/military companies. Lockheed Martin is up only 9.6% in the last half year. And Northrop Grumman is up only 7.12% Investors trying to make money off the new American way of war are going to have to look at mid-cap and small-cap stocks. I've stuck with the mid-caps in our portfolio. You still have liquidity with them as an investor. But the business you're buying is far more responsive to increased orders via new defense contracts. Chalk it up to the division of labor. When a smaller company like Allied Defense Group gets a new contract from a military, it makes up a larger part of its net sales and net income. For example, when ADG's Belgian subsidiary announced at $28.4 million contract in may to supply the U.S. Army with bunker busting 105mm rounds for its new Stryker assault vehicles, it wasn't just another throw away contract. It was a full 16% of ALL of ADGs sales for the last 12 months. Compare that with Boeing. Yesterday, the Defense Department announced that "The Boeing Satellite Systems Incorporated, El Segundo, Calif., is being awarded a $21,134,625 cost-plus fixed-fee contract to provide for design and delivery of space-qualifiable, open architecture on-board digital signal processor. " The contract is about the same size in dollar terms, give or take a few million. But as a percentage of Boeing's $51. billion in sales....$21 million is just another day at the office for Boeing.