abuaboyisonib
01-27-2016,
Posts: 30
Let’s get some discussion going on the stocks in the Top50ActionStocks! Thanks to Jay for making that list. I find it to be a great source of ideas, and I look at companies I would never have found otherwise.
Huntington Ingalls (HII) was spun off Northrop Grumman in 2011.It is a wharf selling only to the US navy. It came up in one of the previous top 50 action sheets, but dropped out and fell to a B on the last sheet. The stock went up a bit so I guess that's why. Even though I missed the opportunity a few weeks back I am still interested in the company.
From what I understand HII is in a duopoly when it comes to building nuclear vessels for the US Navy.
Lately I have become more interested in finding wide moat companies rather than pure bargain hunting. Que Buffet quotes "Wonderful companies at a fair price" and "Stable business in a stable industry."
The company is currently trading at 15% below instincts value using a 12% discount rate.
On to the moats: I see two possible moats here.
Switching costs. There is a stickiness to this business. Not only do HII make money building ships, they also make money servicing them. The US Navy can’t easily go somewhere else without risking a loss in quality. Also, if the Navy doesn’t send contracts to HII they risk losing know-how, know-how built up over a long time. It’s in their interest that HII exists so to speak.
Regulations. I don’t know what kind of permissions you have to have to start building nuclear subs in the US, but I guess it’s not something you start building out of a garage in California. And even if you could, it would take time for the Navy to trust your product (which goes back to switching costs). There is also a political risk: Lots of union workers work there, making it difficult for the government not to send business that way.
I’ll throw in a bit of Macro as well (I know – its frowned upon).But I think it’s important to have an opinion on whether the demand for the product will go away in the future or not.
In many ways the US is an island. If the US wants to maintain an ability to influence other parts of the world using their military abilities, or maintain the threat there of, the US will need a Navy. I think this will become more and more so considering what is going on in the Chinese sea, Middle East and Russia these days.
Feel free to add your thoughts on the company or the stock.
Here are some links to some analysis over at Seeking Alpha. I should add that these were made before the lastest price hike.
http://seekingalpha.com/article/3633236-huntington-ingalls-industries-great-play-aerospace-defense-industry
http://seekingalpha.com/article/3608216-huntington-ingalls-industries-cheap
Let’s get some discussion going on the stocks in the Top50ActionStocks! Thanks to Jay for making that list. I find it to be a great source of ideas, and I look at companies I would never have found otherwise.
Huntington Ingalls (HII) was spun off Northrop Grumman in 2011.It is a wharf selling only to the US navy. It came up in one of the previous top 50 action sheets, but dropped out and fell to a B on the last sheet. The stock went up a bit so I guess that's why. Even though I missed the opportunity a few weeks back I am still interested in the company.
From what I understand HII is in a duopoly when it comes to building nuclear vessels for the US Navy.
Lately I have become more interested in finding wide moat companies rather than pure bargain hunting. Que Buffet quotes "Wonderful companies at a fair price" and "Stable business in a stable industry."
The company is currently trading at 15% below instincts value using a 12% discount rate.
On to the moats: I see two possible moats here.
Switching costs. There is a stickiness to this business. Not only do HII make money building ships, they also make money servicing them. The US Navy can’t easily go somewhere else without risking a loss in quality. Also, if the Navy doesn’t send contracts to HII they risk losing know-how, know-how built up over a long time. It’s in their interest that HII exists so to speak.
Regulations. I don’t know what kind of permissions you have to have to start building nuclear subs in the US, but I guess it’s not something you start building out of a garage in California. And even if you could, it would take time for the Navy to trust your product (which goes back to switching costs). There is also a political risk: Lots of union workers work there, making it difficult for the government not to send business that way.
I’ll throw in a bit of Macro as well (I know – its frowned upon).But I think it’s important to have an opinion on whether the demand for the product will go away in the future or not.
In many ways the US is an island. If the US wants to maintain an ability to influence other parts of the world using their military abilities, or maintain the threat there of, the US will need a Navy. I think this will become more and more so considering what is going on in the Chinese sea, Middle East and Russia these days.
Feel free to add your thoughts on the company or the stock.
Here are some links to some analysis over at Seeking Alpha. I should add that these were made before the lastest price hike.
http://seekingalpha.com/article/3633236-huntington-ingalls-industries-great-play-aerospace-defense-industry
http://seekingalpha.com/article/3608216-huntington-ingalls-industries-cheap