What stocks in your portfolio will be affected by the sequester?

 

All of us have read the headlines about the sequester.  There has been no budget deal amongst our elected officials in Washington D.C. and the sequester deadline has come and gone.  Mainstream media has endlessly talked about the sectors that will get hit hard by the budget cuts–mainly Defense, Education and Social Service.

So the Stockguy22 Team has spent the last few months and weeks doing research, digging into the stocks that will provide trading opportunities for you.

se·ques·ter  (noun) – A general cut in government spending.

The sequester is a group of cuts to federal spending set to take effect March 1, barring further congressional action.  It was supposed to take effect on January, 1st,  2013, but the feared economic impact of both the budget cuts, the expiration of the Bush-era tax cuts, and the expiration of the temporary payroll tax cut were feared to have enough impact to pull the U.S. economy into a recession.  This was known as the ‘fiscal cliff’; the sequester was postponed until March.

The 2013 sequester includes:

  • $42.7 billion in defense
    • 7.9 percent cut
  • $28.7 billion in domestic discretionary
    • 5.3 percent cut
  • $9.9 billion in Medicare
    • 2 percent cut
  • $4 billion in other mandatory categories
    • 5.8 percent cut to nondefense programs
    • 7.8 percent cut to mandatory defense programs

A total of $85.4 billion in cuts will be made in 2013, if nothing changes in Washington.

Additionally, cuts will take place from 2014 to 2021, cutting $87 to $92 billion from the discretionary budget every year,  with $109 billion total.

As traders and investors, we try to take a look at opportunities that event or news driven price action provides, capitalize on the fear and greed;,and hopefully make money.

Let’s start off with the Defense Sector.  Most traders know about the big defense contractors like Lockheed Martin (LMT), Northrop Grumman (NOC) and Boeing (BA).  However, some lesser known companies derive large portions of revenue from government contracts.

 

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Other notable names in this sector that either derive at least $1B from government contracts or have at least a quarter of total revenue derived from defense related sources are the following:

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Aside from these sectors that get the air time, there are 2 other industries which I think can be adversely affected by the cuts which aren’t mentioned as much – Construction & Steel Industries.

The public companies featured below, construction and engineering design fields, revenue could be adversely affected by cuts to government spending to deal with the looming budget deficit.

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With the exception of ______, (____) is the company on the list who relies most; about 16% of revenue from government contracts.

If the engineering and construction companies can expect reduced contracts for highways, bridges and tunnels, you can expect steel companies to also be indirectly affected. While data to show how much of their revenue streams are derived from government contracts is sparse; we can make an educated guess that this can affect their revenue stream.

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We will discuss some of these names from a technical and chart standpoint at the webinar on Saturday, March 9th, 2013.

Sources:
Yahoo! Finance
http://www.whitehouse.gov/sites/default/files/omb/assets/legislative_reports/stareport.pdf
http://www.pewstates.org/uploadedFiles/PCS_Assets/2012/Nine_Subsidyscope_charts.pdf

 

 

 

 

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