December 07, 2012 at 07:49 AM EST
EmergingGrowth.com Report on The Fiscal Cliff and Defense Stocks, update on Pharmaceuticals.
EmergingGrowth.com Report on The Fiscal Cliff and Defense Stocks, update on Pharmaceuticals.

EmergingGrowth.com, a leading digital financial media company, Reports on the Fiscal Cliff and Defense Stocks Taser International (NASDAQ: TASR), Dynamics Research (NASDAQ: DRCO), Dratos Defense & Security Solutions (NASDAQ: KTOS), and Anaren, Inc. (NASDAQ: ANEN).  Visit EmergingGrowth.com for today’s Pharmaceutical Report on Threshold Pharmaceuticals, Inc. (NASDAQ: THLD), concerning Amgen (NASDAQ: AMGN) and Celgene (NASDAQ: CELG)

 

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The hottest issue in the U.S. economy right now is the looming “fiscal cliff,” an across-the-board mixture of tax hikes and government spending cuts which a then-deadlocked U.S. government put in place in 2011 as an eleventh-hour effort to reduce the nation’s $1 trillion deficit. Unless the Republican House of Representatives can reach a settlement on an alternate plan with the president and Democratic Senate, this so called fiscal cliff will go into effect in January 2013. While the impending threat looms like the sword of Damocles over the entire market, no sector has been and will be more directly affected than defense contractors.

 

The military, which is still reeling from the half-trillion-dollar cut in last year’s deficit-reduction law, is looking at another $10 billion to $15 billion cut in anticipated defense spending each year for the next decade. Defense contractors are facing sequestration, a process in which automatic, indiscriminate across-the-board budget cuts are imposed on government programs to impose cutbacks in spending and meet financial goals created by law. If sequestration does come about, $1.2 trillion in budget cuts will begin on January 2, 2013 and continue for the next nine years.

 

There is no doubt that the cuts will adversely impact a number of emerging growth defense contractors such as Taser International Inc. (NASDAQ: TASR) and Dynamics Research Corporation (NASDAQ: DRCO). Amid the uncertain climate regarding defense, investors have sold off defense companies, particularly service providers like Dynamics with a market cap of $56 million. The company provides management and IT consulting to the Department of Defense. Shares have been slashed by half this year, to just over $5, as investors fear the worst is yet to come.

 

Kratos Defense & Security Solutions, Inc. (NASDAQ: KTOS), a leading National Security Solutions provider with a market cap $246 million, recently announced  that it has been awarded a contract by the U.S. Naval Education and Training Command (NETC) to supply training development for the U.S. Naval Chaplaincy School and Center (NCSC). The contract is valued at $1.5 million, yet despite the acquisition of the defense contract, shares are decidedly down selling at $4.35 at the time of this writing. Another emerging growth company laboring under the capricious whims of an indecisive congress is Anaren, Inc. (NASDAQ: ANEN), a provider of microelectronics, and microwave components and assemblies for the wireless and space and defense electronics markets. Again price per share has dropped, as the fiscal debacle looms ever closer.

 

Sequestration will bring many adjustments in how the government will choose to spend its inadequate resources. Accordingly, government contractors should begin to plan for sequestration and how they will address the coming effects on the federal procurement process. Emerging growth companies are particularly vulnerable as they have limited resources when compared with larger government contractors. The possibility that sequestration will occur is suitably great that it is vital that federal contractors take practical steps to tackle the future impacts of sequestration. It is just unfortunate that small cap defense contractors are being held hostage at the edge of this very steep fiscal cliff.

 

 

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