PremierInvestor.net Newsletter Thursday 09-13-2001 section 1 of 1 Copyright © 2001, All rights reserved. Redistribution in any form is strictly prohibited. The entire newsletter is best viewed in COURIER 10 for alignment ================================================================= To view this email newsletter in HTML format with imbedded charts and graphs, click here: http://www.PremierInvestor.net/htmlemail/894_1.asp ================================================================= In section one: Market Wrap: Line In The Sand Sector Impact - Insurance Exposure Sector Impact - Airlines and Aircraft Manufacturers Sector Impact - Spotlight on Oil Sector Impact - Playing Defense Special Report - A Split Decision? ----------------------------------------------------------------- =========== Market Wrap =========== Line In The Sand by Jim Brown The TV networks are starting to go back to normal programming. Only the news channels are still broadcasting non-stop "attack on America" reports. Miraculously, survivors are still being found in the rubble even when adjoining buildings are still in danger of collapse. The FAA has issued new rules for flying and opened airports for operations again. The hijackers have all been identified and arrests are underway for those accomplices which can be located. But America has not yet gone back to business as usual. What business as usual may mean remains to be seen. The stock markets will remain closed until Monday due to infrastructure problems at the NYSE and continuing cleanup and rescue operations. Just this afternoon the capital building was evacuated do to a bomb scare. Vice President Chenny was relocated to Camp David for unspecified reasons. New York airports were closed again in late afternoon by the FBI for unspecified reasons. Four men reportedly dressed as pilots were detained at a New York airport when they tried to board a flight. The magnitude of the disaster has caused extreme over reaction in all areas of security. While this is going to be a nuisance for those affected it will undoubtedly provide a safer environment. It will also provide a fertile ground for pranksters and bomb hoaxes. Travel as we know it has ceased. Amtrack is booked solid for the next ten days. There are almost no rental cars available in any major city. The new rules for air travel will make us feel like we are traveling in Israel due to the security cautions. No curbside check in, only passengers can go past security. Some airports have prohibited parking at the airport. Stringent ID checks will be required at every checkpoint. Armed sky marshalls will be on most planes. Check in before boarding is now estimated to take 2.5-3 hours. Carry on luggage will be subject to increased searches. Sounds like a travelers nightmare. Is it any wonder that airline reservations are being cancelled in record numbers? Hotel reservations are evaporating at tourist locations like Florida, California, Vegas, Atlantic City. The American citizen is going to stay home for the foreseeable future. The government has issued warnings for all Americans traveling abroad urging them to curtail outings and keep a very low profile. Can you say cancel European vacations? The news media keeps referring to the spurt in building as the buildings destroyed in New York are rebuilt. If they are going to rebuild the WTC will they put a target on the side for the next attack? After all this was the second time terrorists had use the symbol of world capitalism as an attack point. There is a rising amount of commentary that the skyscraper may be dying. Do you think Morgan Stanley will want to put 50 floors of operations in another 100 story building any time soon? Anyone who thinks that this will never happen again is severely mistaken. We are an open society and the strongest power in the world. This also makes us the primary target for anyone wanting to make a name for themselves in the future. Do you think Saddam Hussein would pass on a chance to take out the Sears Tower if it was offered to him? How about the TransAmerica tower in San Francisco? One only has to compare the deaths and damage done to the Pentagon compared to the damage to the towers. 120 killed and only the impact area destroyed. Business as usual in the other sections of the building. Skyscrapers may be an endangered monument to modern building techniques. Taking this attack to the next level, like the Tom Clancy novel, it would be easy for Osama Bin Laden to lease or buy a 747 somewhere in Asia and load it with explosives. That flying bomb could come right through the air traffic control system on a regular flight plan and until it deviated to its target nobody would be any wiser. To combat this in the future and it is only a matter of time until it is attempted, corporations are likely to go back to the distributed campus concept in an effort to protect their business and employees. Being in a very highly concentrated population center is not as meaningful with today's Internet communications as it was when things went by courier and mail. We are far less interested in the hassles of working downtown than we are with safety concerns after the Oklahoma bombing. Consider that there are over 150,000 financial/market related workers in the square mile around the NYSE. Am I the only one that sees this as another bullseye? Most people do not want to acknowledge the risk but Osama bin Laden has been trying to buy/steal nuclear weapons for at least four years. Several newspapers from that part of the world have claimed that he was successful in getting some from Chechnya for $30 million and two tons of opium. He is reportedly attempting to convert to them suitcase weapons for obvious reasons. The FBI and the US government has offered a $5,000,000 reward for him since 1999. http://www.fbi.gov/mostwant/topten/fugitives/laden.htm It is only a matter of time before some terrorist faction explodes a nuke in a major city. Any guess on which city would make the most likely target after all the TV press and market shutdowns? I am glad to see the markets remain closed until Monday. The rescue needs to continue without the complication of massive traffic and the influx of those traders. We will be doing a special strategy session for next week in the weekend newsletter. The coalition against terrorism is growing and the building blocks are being put into place for a massive retaliation. India has offered its airfields for staging. The United Nations invoked article five and opened all NATO airfields to unrestricted operations for coalition efforts. Several OPEC nations including Saudi Arabia have offered their airfields as well. The U.S. needs to build this coalition to prevent the idea that it is the U.S. against Islam. The terrorists will try and spin this in that direction to garner support. Regardless of the numbers of countries in the coalition the terrorists are not stupid, we will still be the eventual target for future attacks. It is stupid to think that there will not be future attacks. There is no way to wipe out these factions. Osama Bin Laden announced that he had no involvement in the WTC attack but he was glad it happened and then promptly dropped out of sight. The Justice Dept said there could have been as many as 50 people involved in the WTC attack in addition to the 18 hijackers. This was not a one man show or a random event. The Laden terrorist group called Al-Qaeda has huge amounts of money and thousands of members in dozens of countries. There is no way the coalition can find and destroy all the elements of this group, ever! Al-Qaeda is only one of many groups that have as there sole goal terrorist attacks on the U.S. and Israel. Every successful attack encourages an even bigger effort for the next attack. If Al-Qaeda can be so successful then others will try to match them or exceed them. Not a pretty picture. The groups have now had several days to spread out, go even deeper underground and make it harder for the coalition to find them. Retaliation will not happen overnight. Let me preface this paragraph with this fact, I am a republican. I believe in the things George Bush stands for. However, I am very disappointed in his performance so far. Enough of the calm "we will find the people responsible and bring them to justice, (pause)" rhetoric. Enough with the eight words and pause for effect when speaking! Where is your emotion? Is he so paralyzed with doubt and indecision that he doesn't know which way to jump? While these are my impressions on the surface I know that in reality he is biding his time until the plan is in place. Intelligence is being gathered, satellites are quietly taking pictures and monitoring the dispersal from the terrorists strongholds. Governments are being threatened with compliance or attack. Countries that will not give coalition troops free rein for ground strikes against terrorist locations will be faced with being put on the "harboring" list and themselves being targeted. Iraq, Iran, Syria, Libya and other countries not immediately being targeted are watching closely. Mr. Bush, maybe this is selfish on my part, but it is time to stand up and be counted. The terrorists may have wanted to teach us a lesson by such a massive attack. Unfortunately the lesson may backfire on them. As the strongest power on the planet we endure the many stings and barbs of lower level attacks, kidnappings, harassment and embarrassments by turning the other cheek. We do not want to appear as a bully to the world. We are a diverse culture and we spend billions on things like football games, CDs, trinkets and toys of all kinds. It is hard to capture our attention on any one thing. We are wealthy, spoiled and fundamentally decent. The terrorists of the world think this makes us weak. We are not weak. We are the strongest power on earth when provoked to wrath. We are currently in pain from the bloody nose we received this week. We are fully awake! Only a few times in history has anyone managed to provoke the American psyche to the extent we were this week. The Japanese did in 1941 with Pearl Harbor and paid the price. The American people rose up in mass and mounted the biggest war effort known to man and Japan paid dearly. The pain and shock is clearing and the American public is wide awake. Retailers have sold out of American flags in only two days. Public mourning is rapidly turning into public outrage and our elected officials had better pay rapt attention. The president has a blank check. The coalition is gaining speed and the eventual outcome is not in doubt. Bush may be following the "speak softly and carry a big stick" plan but he needs to ramp up his words to the point where countries harboring terrorists begin to worry about their position. The American people are awake and they are beginning to focus. Mr. Bush, don't let this opportunity pass to rally Americans to greater unity and purpose. Don't let those 4700 people die in vain. The country is uniting for a common cause and you need to be our leader, even our cheerleader but not our counselor. We will defend our freedom to the death and this is a message the world needs to understand. They are looking at us and will measure us by our response. If a 98 pound weakling can give us a bloody nose and then run and hide with impunity then others will be tempted to taunt the sleeping lion as well. Send a message to the world that we are mad as hell and we are not going to take it anymore. Follow it up with real action against Bin Laden and make the wannabe terrorists reconsider their chosen profession. Maybe, just maybe, we can create another decade of peace and prosperity before the next generation of dissidents will need to be taught the lesson again. Osama Bin Laden has finally stepped over the line and it is time to make an example of him. The American people will settle for nothing less! ================ Sector Impact ================ Insurance Exposure by Jeffery Canavan Damages from this week's attacks on the World Trade Center and Pentagon are expected to reach billions of dollars. Insurance claims for property, injuries, workers compensation, loss of life, and business interruption could reach $30 billion. Insurance companies do have reserves know as reinsurance to cover substantial claims, but investments may need to be liquidated to cover claims. Some financial assistance from the federal government may also be required. The only other disaster of this magnitude was hurricane Andrew, which produced damages in excess of $15 billion. Insurance companies had a difficult time recovering from those losses, but were eventually able to bounce back. Whether this action is deemed an act of war or an act of terrorism could also determine how much exposure insurance companies will face. Acts of war are not covered under most policies, while acts of terrorism generally are. It is unsure what stance insurance companies will take but the constant reference by government officials that this is an act of war could tempt a few to fight these claims in court. This seems inconceivable to us as spectators to this horror, which clearly appear as acts of terrorism but when you're talking about billions of dollars in losses lawyers may argue otherwise. One analyst speculated that the government may have to step in if one way or the other to shore up the situation. One insurance company that stands to lose millions is Chubb (NYSE:CB). Chubb has significant exposure to property as well as businesses that resided in the World Trade Center. The company is estimating that reinsurance could limit pretax losses to between $100 million and $200 million. Additional claims for workers compensation and business interruption makes an exact amount difficult to predict. Chubb Daily Chart Based solely on the trading of European insurance stocks, Chubb could be in for at least a 10% to 15% drop on Monday. That would put the stock $6 to $10 lower. $56 looks like the most solid support level, but technical levels could take a backseat on Monday. American International Group (NYSE:AIG), the nation's largest insurer of business, issued a preliminary statement that pretax losses would be around $500 million, but stated that it was impossible to get an accurate estimate. Most of AIG's claims will not come from property, but rather a wide range of coverages. American International Group Weekly Chart A 10% drop would plunge AIG to $66.83, and a 15% drop would see the stock trading at $63.13. $54 looks like the most solid support level, but that would be a 27% drop. American International Group is currently an Option Investor put play, but we do not wish to benefit from this tragedy, so we will be dropping it from our play list. Those are two of the insurance companies that could attract the most selling on Monday, but most insurance stock should come under pressure, especially those with substantial life insurance or workers compensation claims. Below is a list of companies that comprise the Insurance Index (IUX.X) so readers can take whatever action they deem necessary to protect their holdings. AFLAC AFL Amer General AGC American Investment Group AIG Allstate ALL Chubb CB CNF CNF Conseco CNC Hartford HIG John Hancock JHF Jefferson Pilot JP Lincoln National LNC Loews LTR MBIA MBI MetLife MET MGIC Investment Corp MTG Progressive PGR SAFECO SAFC St Paul SPC Torchmark TMK Van Kampen VNM ================ Sector Impact ================ Airlines and Aircraft Manufacturers by Jon Farnlof Airlines Already battered by slumping business demand because of a weak global economy, the financial aftershocks of Tuesday's events are going through the aviation industry like a typhoon. Airlines generally operate with a tight 3-percent profit margin. Those margins are going to be under pressure as revenue and earnings take hits from the travel halt, disrupted flight schedules, higher fuel costs and insurance premiums, declines in overseas travel, increased security expenses and government regulation. The recent grounding of their planes alone cost the average major airline $43 million a day in lost revenue. By some estimates the new security expenses could cost the industry millions, if not billions. Some airlines are likely to have particular liability due to the attack. AMR (AMR), the parent of American Airlines and UAL (UAL) the holding company for United Airlines (AMR) as the airlines whose planes were hijacked and their insurers, may need to pay substantial damages to victims' families. And Robert Hiscox, chairman of Lloyds of London underwriter Hiscox Plc is questioning, "Are the aviators responsible through their liability policies for the building damage?" He added, "there is no legal precedent for how it's paid." In general, airlines will probably need to raise fares to cover these costs at a time when they will be stressed to reduce fares to lure back the traveling public. As a result, Standard & Poors has placed the long-term credit ratings for all U.S. airlines, British Air (BAB) and Air Canada (ACNAF) on negative CreditWatch. Conditions are so difficult that according to at least one analyst, some airlines may be pushed into bankruptcy. On Wednesday, the small and struggling Midway Airlines, already in Chapter 11 bankruptcy protection announced it was going out of business. Losses are not solely confined to US carriers. Over 4,000 of the world's 12,000 commercial aircrafts have been grounded. Hamstrung by the loss of the $1 billion a day US market, the International Air Transport Association, with 266 member airlines, estimated immediate industry losses and costs at $10 billion. Prior to the tragedy, the association had projected losses of $2.8 billion. Broker Schroders Salomon Smith Barney has already downgraded the European airlines saying the attack is "likely to have a catastrophic effect on European airline profitability." They cited the greater risk of global recession and a possible initial drop in air travel by as much as 20-percent. In overseas trading, airlines with extensive US flights such as Lufthansa, Singapore Airlines and British Airlines have dropped as much as from 2.7 to 5.4-percent in the days following the attack. . In short, when trading resumes on Monday, it is likely that airline sector share prices will be hammered. Aircraft Manufactures If people are not flying, airlines won't be buying new aircraft. Bear Stearns analyst Steve Binder expects airlines to take advantage of catastrophic clauses in their contracts to delay deliveries in 2002 and 2003. He sees 2003 commercial aircraft production falling more than 10-percent. A Lehman Brothers analyst said that he thinks aircraft demand for Boeing (BA) and its European rival Airbus will "collapse." Binder also forecasts Boeing CO (BA) shares are likely to see a 15 to 20-percent drop in share price. ================ Sector Impact ================ Spotlight on Oil by Jeff Bailey Recent events in the U.S. have part of the world spotlight on the Oil sector. The reason this group of stocks has been pushed back into the spotlight is that there is speculation at this point that supply to the United States may be disrupted at some point should U.S. and Middle East tensions escalate. Since Tuesday's events have had many U.S trading floors halted, lets look at what has taken place overseas as it relates to the futures market in oil and Brent Crude Futures. On Monday, September 10th, the October 2001 Brent Crude futures contract settled at US$27.45 per barrel. On Tuesday, after the WTC and Pentagon attacks, the Oct01 contract settled at $29.06 after trading as high as US$31.05. By Wednesday, Brent Crude futures had calmed down with a day's range of US$28.00-$29.50 and settled at $28.02. (Should commodity markets here in the U.S. not open for trading tomorrow, traders can visit http://www.ipe.uk.com/prices.html to follow Brent Crude prices) As you can see, the initial reaction found buyers coming into the oil markets, but things have settled down and oil prices are roughly $0.60 higher than just before Tuesday's events. While there will most likely be news events coming over the news wires regarding U.S. intentions toward recent terrorist actions, current market action in Brent Crude gives hint that many market participants are awaiting news out of Washington as to what type of action (if any) the U.S. will take as it relates to recent terrorist activities in the U.S. Risk Risk is the first thing that an investor begins to try and understand when it comes to an investment. There are many risks involved when looking at or holding an oil stock. Here I will attempt to discuss the most common risks an investor should look at before making an investment in an oil stock as it relates to recent events. Perhaps the most thought of is "geographic risk." Geographic Risk The oil stock we invest in or may be thinking about investing in may carry "geographic risk." As it relates to supply/demand, this may be considered a supply issue. Where does this oil company derive the bulk of its revenues? Are the bulk of its revenues derived from areas in the Middle East where those assets may be at risk depending on how future events unfold? Many of the larger multinationals derive a large portion of their oil production from overseas or reservoirs located in the Middle East. Once the oil is produced, will some of that oil be loaded on a tanker and transported to the United States or other parts of the world? Will those transportation routes be accessible? No long after the attacks on the WTC and Pentagon, the U.S. closed it borders to Canada and Mexico. Some seaports were also closed and this raises the issue of just how supply of oil may reach U.S. shores should events escalate. I am in no way implying that this type of situation would occur, but it does give us something to think about and build on when making an investment decision in oil stocks. CBOE Oil Index (OIX.X) Often times we are monitoring the CBOE Oil Index (OIX.X) in order to track stock prices for oil companies. Index components are Amerada Hess (NYSE:AHC), British Petroleum (NYSE:BP), Chevron (NYSE:CHV), Kerr McGee (NYSE:KMG), USX Marathon (NYSE:MRO), Occidental Petroleum (NYSE:OXY), Phillips Petroleum (NYSE:P), Royal Dutch Petroleum (NYSE:RD), Total (NYSE:TOT), Texaco (NYSE:TX), Unocal (NYSE:UCL) and Exxon Mobil (NYSE:XOM). Of these companies, three have corporate headquarters outside of the United States. British Petroleum's corporate headquarters are based in London, UK, Royal Dutch is based in The Hague Netherlands, Netherlands and Total is based in Courbevoie, France. The remaining companies are headquartered here in the United States. Persian Gulf War I do not tout myself as an oil analyst, but I did work for Mobil Oil Corporation for several years in the production geology department. During that time, I had several friends based in overseas locations during the Persian Gulf War. That was a time of great concern for me as I knew several geologists and engineers that were on assignment in Saudi Arabia. During that time, all Mobil employees (in the U.S. and abroad) were given educational training regarding potential terrorist activities against its employees. I traveled a lot during that time period and every employee had various instructions on how to maintain anonymity and travel safety tips. Suffice it to say, recent events are very similar what we were warned about in the early 1990's. One of the cardinal rules was that no more than 3 employees working on a particular project were allowed to board the same airline flight. History Let's take a look at how one of the world's largest oil companies traded during that time of unrest and see if we can get a feel of what to look for as it relates to how oil stocks might react near-term. I'm a big believer that we can use past history to get a better understanding of how market participants react. While the Persian Gulf War was a different event than what is taking place today, there may be certain ties or assumption made as it relates to the United States and the Middle East. Here's how shares of Exxon Mobil (NYSE:XOM) traded during that time frame. I would note, that the chart below is that of Exxon as the merger between Exxon and Mobil had not yet occurred. Exxon Mobil Chart - before and after Persian Gulf War Tensions in the Middle East were rising well before Iraq invaded Kuwait on August 2, 1990. The above chart was taken from www.stockcharts.com and their feature of historical charting capabilities. In recent reports we've written on the Premier Investor Network, we've noted how markets seem to have had a "knee-jerk" reaction initially to various world events. Then as markets have time to digest the news and act more rational, things begin to calm down. In recent day's we've seen Brent Crude trade very similar so far to the historic chart above of XOM. From here on we can perhaps track Brent Crude and other crude oil contracts to see if history will repeat itself. Notice the run up in shares of XOM prior to Iraq's invasion of Kuwait from the $12.50 level the $13.50 level. Then the settling of trading back to $12.50 over time as Iraq's troops retreated from Kuwait. Domestic/ North American Oil Producers There are energy companies that derive the bulk of their oil production from areas outside the Middle East. Some derive much of their production here in the U.S. or near our shores. In recent commentary I did mention that the Premier Investor Network would refrain form profiling stocks that may benefit or decline due to recent events. Since oil stocks could potentially be a sector that could benefit depending on how things play out, I will refrain from specific stock recommendations at this time. Subscribers questioning the existence of oil companies that do not have a great deal of international exposure may wish to begin researching shares of Suncor Energy (NYSE:SU) should they be looking for an energy play with little international exposure. ================ Sector Impact ================ Playing Defense By Eric Utley Tuesday's tragic events forever changed the landscape and psyche of America. The ramifications of the terrorist acts will impact many things American. Preliminary statements from government leaders suggest that the U.S. defense sector is in store for further build out. Strong Statements Thursday, President Bush declared, "We have just seen the first war of the 21st Century." The President vowed to "lead the world to victory" against terrorists. In a separate statement, Deputy Defense Secretary Paul Wolfowitz told reporters that the United States would lead a sustained military campaign against terrorists factions. The Secretary said, "One thing that is clear is you don't do it with just a single military strike, no matter how dramatic." Wolfowitz added, "We're going to keep after these people and the people who support them until this stops." In order to defend against what has come to be known as 'A New Kind of War,' government leaders rushed Thursday to pass an emergency terrorism package through Congress. The price tag of the package amounts to $20 billion, which will pay for the searching of victims, the clean up process, and for immediate military needs. According to Secretary Wolfowitz, the $20 billion package is only the tip of the iceberg. Wolfowitz said, "It is not just to tell the American people, but to tell the world that $20 billion is a lot of money. But for this country, it is just a down payment on what we are going to do." Representative Bill Young, a Republican from Florida, said the 'second punch' of the spending package would be delivered with next year's national security appropriations. ***** With the bipartisan support coming from government leaders for a further increase in defense spending, we thought it would be beneficial to profile several companies in the defense industry ahead of any continued build out. We, however, appreciate the fact that any potential benefit from the Attack on America will NEVER compensate for what was lost Tuesday, September 11, 2001. It is only after accepting that much that we will profile companies in the defense industry. The Facets of Defense It should be noted that the defense industry has seen significant spending increases over the past decade. The defense industry, ironically enough, hit a bottom about ten years ago, when the Soviet Union broke up and the Cold War ended. Since that time, sequential increases in spending have benefited those companies operating in the defense industry. The Attack on America, unfortunately, should give yet another boost to the business of protecting the United States. It remains to be seen what the long-term impact of the terrorist attacks are on the business. Going out five or ten years is difficult to predict with any degree of intelligence. But the business should see an increase in orders over the next six to nine months. The areas of the defense industry are quite varied. And it remains to be seen which segments will benefit most. The larger defense items, such as fighter jets, bombers, and tanks are less likely to receive an immediate boost in orders. For example, Lockheed Martin (NYSE:LMT) is less likely to see an immediate increase in orders for its F-16 Fighter Jet. And the same goes for Boeing (NYSE:BA) and its F-15 and various bombers, including the B-2 and B-52. (In Boeing's case, the company is likely to see a large blow to its core business of manufacturing commercial airlines.) Not only are the bigger ticket items less likely to see a pickup in orders due to their cost and time requirements for production, but the war against terrorists does not necessitate the use of bombers nor tanks. Those tools don't work against terrorists. The war against terrorists is fought on a 'different' battlefield, so to speak. The areas that are most likely to see an increase in spending are those in defense-related electronics and battlefield information technology. Companies that manufacture surveilance equipment, satellites, electronic listening devices, and precision weapons are likely to see an increase in orders. Alliant Techsystems Alliant Techsystems (NYSE:ATK) is a company that specializes in the aforementioned areas. The company operates in four principle divisions: Propulsion, Composite Structures, Munitions, and Precision Capabilities. Among its products include military ammunition, munitions propellants, commercial gunpowder, anti-tank systems, tactical barrier systems, precision-guided munitions, electronic warfare systems, and infantry weapon systems. The company's primary customers are the U.S. Air Force, U.S. Department of Defense, and allied nations. Alliant is somewhat hedged when it concerns the focus of U.S. government spending through its partnerships with allied nations. There's sure to be debate over whether to focus defense spending domestically or abroad. The spending will most likely be divided between the two, but Alliant's presence in countries such as Israel, Kuwait, Pakistan, and Saudi Arabia should be of a large benefit in this particular case. As seen on the chart below, shares of Alliant Tech have seen a steady increase in value since early 2000, which is a testament to the overall increase in defense spending during the recent past. Further increases in spending could very well drive shares higher. Northrop Gruman A large portion of Northrop Gruman's (NYSE:NOC) operation is concerned with defense electronics, which could make the company a beneficiary of increased defense spending. Specifically, its Information Technology Division known as Logicon. The division, which is a wholly owned subsidiary of the company, is a leading provider of information technology services to the U.S. government. Logicon's specialties include control communications, intelligence operations, surveillance, and reconnaissance. Earlier in August, Logicon announced that its joint venture with Computer Sciences (NYSE:CSC) had been selected by the National Security Agency (NSA) to develop the government agency's Groundbreaker Information Technology Network. The deal was valued at roughly $2 billion at the time, but may see a significant short-term increase in funding. It was originally estimated that the project would take about ten years to complete, but that timeline may now be shortened. When completed, the Groundbreaker program will provide communication and network services, along with distributing computing and enterprise management services for the NSA at its headquarters in Fort Meade, Maryland, along with its satellite offices. Like shares of Alliant Tech, shares of Northrop Gruman have experienced a significant rise since early 2000. General Dynamics General Dynamics (NYSE:GD) is a diversified defense contractor with operations ranging from Marine Systems to Information Systems & Technology. The company maintains leading market positions in land and amphibious combat systems, information systems, aircraft services, and shipbuilding systems. The two former divisions stand to see the largest increase in spending over the next two or three quarters. General Dynamics' Information Systems & Technology division serves the defense industry with the "infrastructure and systems integration skills they need to process, communicate, protect and manage information effectively," as stated on the company's Web site. The roles of the company's products and services from this division are to aide military organizations with the gathering and processing of "battlespace" information and intelligence. General Dynamics' Web site describes its Combat Systems Division as follows: "Combat Systems is becoming the world's preferred supplier of land and amphibious combat system development, production and support. Its product line includes a full spectrum of armored vehicles, light wheeled reconnaissance vehicles, suspensions, engines, transmissions, guns and ammunition handling systems, turret and turret drive systems, and reactive armor and ordnance." These products can be employed by special forces when negotiating small bands of terrorists and are likely to see an increase in demand from the U.S. government and its allies. The General Dynamics chart is very similar to what has been displayed on its cohorts' charts. The steady, long-term trend higher reinforces that defense spending has been on the rise. L-3 Communications Holding L-3 (NYSE:LLL) is a little less-known in the defense industry, but may see an increase in orders, especially in its Military Communications & Tactical Security Division. The company manufactures a ground sensor system which is used along paths of travel of enemies on the battlefield. The sensors detect seismic and acoustic changes, as well as energy and magnetic field disruptions. The aim of the sensor is to detect enemy activities on the battlefield. Unlike its above-mentioned counterparts, shares of L-3 have been on a steep slide since earlier this summer. That trend may reverse if the company sees a significant up-tick in orders over the next few months. ***** Companies within the defense industry, possibly the ones we've profiled in this column, will no doubt be vying for a large slice of the proposed spending increases by President Bush and members of Congress and the Senate. Indeed, there are many, many more companies in the business that are smaller, niche players that we didn't profile in this column. But the expected increase in spending should positively impact the entire sector over the intermediate-term. President Bush had already requested about $330 billion for his 2002 budget, which is a 14 percent increase over President Clinton's $290 billion request during 2001. That number may meet approval, and then some this year. And according to the remarks from our governmental leaders Thursday, 2003's defense budget should see a measurable year-over-year increase. For that simple reason, the defense sector may be worth watching over the coming six to nine months. My prayers are with the victims and their families. ================ Spercial Report ================ A Split Decision? by Brenda Johnson In light of this week's events, it is reasonable to consider that some companies may choose to postpone previously announced stock splits. The Investor Relations departments for each of the following companies have confirmed that they have not altered the original schedule and shares will in fact trade on a split- adjusted basis as planned or upon the re-opening of the market. Keep in mind that decisions are always subject to change, in which case individual companies would most likely issue a press release. Stock splits scheduled for this week and for the week of 9/17 Payable Executable Ratio 09/10/2001 09/11/2001* Nicholas Financial (NICK) 2:1 09/10/2001 09/11/2001* Herley Industries (HRLY) 3:2 09/11/2001 09/12/2001* NVidia Corp. (NVDA) 2:1 09/14/2001 09/17/2001 Smithfield Foods (SFD) 2:1 09/14/2001 09/17/2001 Chittenden Corp (CHZ) 5:4 09/18/2001 09/19/2001 Sterling Bancshares (SBIB) 3:2 09/20/2001 09/21/2001 N.Y. Community Banc (NYCB) 3:2 09/21/2001 09/24/2001 Moog Inc. (MOGa) 3:2 *These companies will trade ex-dividend upon market's re-open The following stocks began trading on a split-adjusted basis on Monday, September 10: Payable Executable Ratio 09/07/2001 09/10/2001 SCP Pool Corp (POOL) 3:2 09/07/2001 09/10/2001 Alliant Techsystems (ATK) 3:2 09/07/2001 09/10/2001 CONMED Corp (CNMD) 3:2 09/07/2001 09/10/2001 Monaco Coach (MNC) 3:2 09/07/2001 09/10/2001 Connecticut Water (CTWS) 3:2 09/07/2001 09/10/2001 National Fuel Gas (NFG) 2:1 ================================================================= To stop receiving this PremierInvestor.net Newsletter, send email to Contact Support ================================================================= DISCLAIMER ================================================================= This newsletter is a publication dedicated to the education of stock traders. The newsletter is an information service only. The information provided herein is not to be construed as an offer to buy or sell securities of any kind. 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