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DEFENSE IS HERE TO STAY

|Includes: Raytheon Company (RTN)

· Raytheon is a critical supplier of defense technologies that consistently delivers high return on equity in excess of 20%. Current levels of EV/EBIT at 8x a historic low and thus introducing a margin of safety. The firm is a secure way to participate in a stable defense industry that is here to stay.

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Management's use of cash is shareholder friendly: $1.3 billion of share buybacks reduces share count; dividends have been raised consistently for the past 5 years to the current yield of 3.2%. RTN is misunderstood because of the assumption that defense spending may be impaired. Yet RTN's mission critical services are a significant barrier to entry and will prove resilent under all administrations; most DOD cutbacks affect other programs, whereas RTN is diversified on a project level and per geography. The firm's backlog provide a firm foundation for stable earnings.

High barriers to entry protect high ROIC. Over 80 years the company has carved out a very strong position in the US and is expanding its products abroad with products and services that have little competition. Programs such as the patriot missile program continue to provide stable earnings and RTN has established strategic partnership with key foreign allies.

Disclosure: I am long RTN.