The basic fact is that when someone is shooting at you, the first thing on your mind is going to be finding cover or protection. When the military puts troops on the ground in a hostile-fire situation it has to protect them. These companies do just that by providing armor plating and blast protection to those at risk.

Taking Cover
Armor Holdings (NYSE: AH) has agreed to be acquired by British defense and aerospace company, BAE Systems (OTC: BAESY) for $4.1 billion or $88 per share. This represents quite a premium over the $2.8 billion market capitalization AH had prior to taking cover behind BAE.

Even more intriguing is the fact that Armor Holding's revenue, operating income and earnings had all turned considerably south over the past three years while the price of its shares went considerably north.

Armor Holdings primarily manufactures tactical wheeled-vehicles with armor protection for military customers. It also produces products for police departments and commercial applications where blast protection is required, although this segment only accounts for roughly 15% of the firm's revenue.

Going forward, Armor Holdings has joined with Lockheed Martin (NYSE: LMT) to compete against three other teams for the Joint Light Tactical Vehicle, or JLTV, which will replace the Humvee - a $10 billion program. Armor Holdings continues to be the provider on the Family of Medium Tactical Vehicles (FMTVs) until 2008.

BAE Systems is the fourth-largest defense contractor in the world and the largest in Europe, with a market capitalization of $126 billion. BAE Systems is the combined entity of the merger of British Aerospace and Marconi Electronic Systems, a defense component of General Electric (NYSE: GE).

The company manufactures military aircraft, naval systems, electronic intelligence systems for command, control, communications, surveillance and reconnaissance. It also has partnerships with the biggest names in aerospace. Why would it want Armor Holdings? Obviously for an entrée into the JLTV bidding as well as armor protection for Boeing's (NYSE: BA) F/A-18, Northrop Grumman's (NYSE: NOC) F-14, General Dynamic's (NYSE: GD) F-16, Lockheed Martin's F-35, the F-22 rotary wing combat aircraft and so forth. BAE estimates that the 36% of its revenue it now derives from the United States will expand to approximately 42%. On a global basis, why deal with just one defense department when you can deal with dozens?

The Competition
Force Protection (Nasdaq: FRPT) is the competition for Armor Holdings. It manufactures vehicles with ballistic and blast protection as well as lightweight body armor, particularly for special operations personnel. The firm also makes armor to protect against IEDs, improvised explosive devices.

FRPT is a relatively small company, with a market capitalization of $1.8 billion and $196 million in sales. Its growth in revenue has been nothing short of spectacular, coming in at 294% last year and 215% for the prior three years. However, its margins are fairly slim at just under 19% gross and 9.3% net.

Facts and figures on a defense contractor are often classified and can be impossible to come by. The company has recently entered into a joint venture with General Dynamics Land Systems for what one must assume is an undisclosed project.

A Fact of Life
We have come a long way from the steel pots and flak jackets of even thirty years ago. It is perhaps a sad commentary on our world, but, as long as we build weapons and have soldiers, we will have a need to protect them. These are three of the companies that produce the products that do that. Perhaps one of these shares will help protect your holdings.

Looking to cook up a market-stomping stock portfolio? Check out our FREE report "7 Ingredients to Market Beating Stocks" and get started right now!

Related Articles
  1. Stock Analysis

    Analyzing Altria's Return on Equity (ROE) (MO)

    Learn about Altria Group's return on equity (ROE) and analyze net profit margin, asset turnover and financial leverage to determine what is causing its high ROE.
  2. Investing

    What Investors Need to Know About Returns in 2016

    Last year wasn’t a great one for investors seeking solid returns, so here are three things we believe all investors need to know about returns in 2016.
  3. Investing News

    Icahn's Bet on Cheniere Energy: Should You Follow?

    Investing legend Carl Icahn continues to lose money on Cheniere Energy, but he's increasing his stake. Should you follow his lead?
  4. Stock Analysis

    Analyzing Google's Return on Equity (ROE) (GOOGL)

    Learn about Alphabet's return on equity. How has its ROE changed over time, how does it compare to its peers and what factors are driving ROE for the company?
  5. Investing News

    Is Buffett's Bet on Oil Right for You? (XOM, PSX)

    Oil stocks are getting trounced, but Warren Buffett still likes one of them. Should you follow the leader?
  6. Stock Analysis

    Tech Stocks Vs. Financial Stocks in 2016

    Consider the arguments for allocating more of your investment portfolio to either the technology sector or the financial sector for 2016.
  7. Investing News

    Chipotle Served with Criminal Probe

    Chipotle's beat muted expectations and got a clear bill from the CDC, but it now appears that an investigation into its E.coli breakout has expanded.
  8. Stock Analysis

    Analyzing Sprint Corp's Return on Equity (ROE) (S)

    Learn about Sprint's return on equity. Find out why its ROE is negative and how asset turnover and financial leverage impact ROE relative to Sprint's peers.
  9. Stock Analysis

    Why Alphabet is the Best of the 'FANGs' for 2016

    Alphabet just impressed the street, but is it the best FANG stock?
  10. Investing News

    A 2016 Outlook: What January 2009 Can Teach Us

    January 2009 and January 2016 were similar from an investment standpoint, but from a forward-looking perspective, they were very different.
RELATED FAQS
  1. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  2. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  3. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  4. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  5. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  6. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>
COMPANIES IN THIS ARTICLE
Trading Center