Does Endless War Pay at General Dynamics?

America’s Endless War in the Middle East and elsewhere could pay off for investors at General Dynamics (NYSE: GD).

General Dynamics builds a variety of weapons systems and munitions for the U.S. military.  For example, General Dynamics claims to be to the primary producer of artillery shells for the US military.

The heavy weapons that General Dynamics builds include Gatling guns for fighter jets and helicopters, machine guns for helicopters, canons for tanks and other vehicles, the Hydra070 family of unguided rockets, and naval artillery. Light weapons built by General Dynamics include; machine guns, grenade launchers, and Gatling guns for the infantry.

Vehicles built by General Dynamics include the M-1 Abrams tank, the Stryker combat vehicle, and the AJAX light-armored fighting vehicle. Another General Dynamics product is the Flyer family of lightweight, tactical vehicles.

Therefore, General Dynamics builds most of the weapons U.S. forces are using in combat in the Middle East now. General Dynamics constructs the Gatling guns and rockets that U.S. aircraft use against ISIS and other terrorists in Afghanistan, Syria and Iraq, for instance.

Is General Dynamics profiting from War?

Theoretically, General Dynamics makes money each time a US military unit needs a canon, artillery shell, or gun barrel. Hence, General Dynamics could be a value investment for those who can stomach investing in armaments companies.

Moreover, war seems to be a long-term growth business in modern America. In fact, United States forces have been fighting in Afghanistan for 18 years, and Iraq for 16 years. Plus, American forces have been fighting in Libya and Syria for several years.

Additionally, General Dynamics supplies armaments, vehicles, and munitions to warlike U.S. allies such as Saudi Arabia. Saudi Arabia is fighting a war in Yemen.

Will General Dynamics Make money from Future Wars?

Advantageously, General Dynamics builds weapons that they can mount on the next generation of military vehicles.

For instance, drones need to use Gatling guns, rockets, and machine guns to kill people. Robot tanks and walking robots will still need Gatling guns, canon, rocket launchers, grenade launchers, and machine guns to kill the enemy.

Thus, General Dynamics could still make money if artificial intelligence (AI) and robots fight the next war. I think this scenario is far more probable than most people want to admit.

To explain, AI and robots will still need canons, Gatling guns, grenade launchers, rockets, and machine guns to be effective on the battlefield. General Dynamics will still supply the weapons and munitions AI will fire on future battlefields.

Is General Dynamics Making Money?

Currently, the General Dynamics Corporation (NYSE: GD) is making money from war.

General Dynamics reported making a quarterly gross profit of $1.788 billion from quarterly revenues of $9.761 billion on 30 September 2019. In addition, General Dynamics’ revenues and gross profits are growing.

The gross profit grew from $1.686 billion on 30 June 2019, and the revenues grew from $9.555 billion in June. Interestingly, Stockrow estimates General Dynamics’ revenues grew at a rate of 7.33% in the quarter that ended on 30 June 2019.

General Dynamics also generates cash from war. In fact, General Dynamics reported an operating cash flow of $1.091 billion and an ending cash flow of $272 million on 30 September. Thus, you can make money by supplying munitions to the Pentagon.

However, General Dynamics is not keeping much of that cash. General Dynamics had just $974 million in cash and short-term investments on 30 September 2019. I think General Dynamics keeps little cash because building all those weapons, munitions, and vehicles requires expensive infrastructure.

Is General Dynamics a Value Investment?

Cynics will wonder if General Dynamics (NYSE: GD) is a value investment because endless war seems to be America’s new foreign policy. Moreover, terrorists seem dedicated to doing everything in that power to provoke more war.

Therefore, General Dynamics could make money from war for years to come. Unless human nature changes and an epidemic of common sense strikes Washington D.C., America’s Forever War is likely to continue for the foreseeable future.

Despite the Endless War, I do not consider General Dynamics a value investment because Mr. Market overprices it. I see nothing at General Dynamics to justify the $179.76 share price Mr. Market paid for it on 3 January 2019.

In total, each General Dynamics share offered investors a 2.29% dividend yield, an annualized payout of $4.08, and a payout ratio of 34.24% on  3 January 2019. Hence, General Dynamics is an effective stock.

General Dynamics Investors Profit from Endless War

If you want an income stock apt to grow and make money for years to come, General Dynamics could be a good choice. However, those investing in General Dynamics need to realize they are investing in a company that makes products that kill people.

Unfortunately, Forever War can pay off at General Dynamics. Those who want to stop America’s Endless War need to examine General Dynamics; and understand that some companies are profiting from the never-ending warfare.