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Brian Ruttenbur of CRT Capital Group on the defense industry taking a hit from U.S. spending cuts.
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-- US defense programs are on the chopping block.
And congress and the White House failed to reduce our deficit by the end of the year -- US military spending will be slashed by 54 point seven.
Billion dollars in 2013.
That's -- nine point 4% of their total budget.
So what does it mean for the defense industry and which companies could take the biggest hit.
Joining us now to -- -- Ryan Ryan berg managing director of research at CRT capital.
Brian first of -- you're saying regardless of the election regardless of who wins the defense industry will see budget cuts.
That that's correct.
Over the last seventy years.
Defense US defense has gone in cycles and I see that today it's war.
It's spending ramps up.
And then after the war spending ramps down were coming out of the war we should be out of combat operations and Afghanistan in the next two years.
We're gonna see spending ramp down in defense and sequestration is just.
One thing that's gonna hit the defence group but there's other things just the ramp down the pure ramp down.
Coming -- the work I see happening.
OK so let's start with do you think's gonna be hit first you say this service companies are the first to see their bottom line affected like -- Well all the defense -- have -- services components.
There's a company there's a lot of specific security.
Services companies gives me and defense services companies.
One of them happens to be in agility EG EL.
That's one that I'd I have some concerns about its a recent spin off from L-3 -- I'll I'll.
And -- they they have the potential because they have a lot of Afghanistan exposure today.
Today -- had also the big defense -- will get a hit on the product side that over time.
Yes so then and then that case you're talking about.
The likes of Lockheed Martin general dynamics.
North government they are the defense products companies in -- saying.
It could take time but we will see those stocks affected as well.
That's correct if you're halfway through and after 35 build our twenties at 35 builds.
You continue to build those F 35 scares you got a 150 million dollar supplying.
You don't just stopped construction.
But over time I see that the big.
-- big platforms are going to have to get stretched out some of them canceled.
Just over time as we squeeze the budget down.
You know these companies it in preparation are basically.
Sitting on cash they don't know what to do they're issuing really nice dividend so.
Absolutely.
I think it's a dividend yield trap right now.
Is it as an investor going into these 5% dividend yield stories.
I'm a defense primes as yell Lockheed's -- around 5% range in the problem is over time can they maintain.
Their current earnings.
And yes.
For the next year or so I think they can.
But longer term I have concerns that.
We are at definitely at a peak -- -- cycle we have all these negative catalyst coming ending the war.
Sequestration yeah I don't see that longer term we can continue this.
So buyer beware Brian -- -- thank you very much for your insight.
Thank and it's not like we have seen it coming exactly.
