For those of us who follow financial markets and in particular U.S. GovCon stocks, let’s take a deep breath during this slightly slower Friday session and take a brief look at the wild volatility that has swept through equities.
Going back to last Friday the 9th, the benchmark S&P 500 has swung up or down at least one full percent in four sessions as investors try to both gauge U.S. economic health and set their expectations on whether or not the Federal Reserve will move interest rates up this month.
In turn, Executive Mosaic’s GovCon Index — of which 11 are also in the S&P 500 — has also added or lost a full percentage point in four days from five as the relatively more stable government contractor stocks are also getting swept in with larger trends in the market.
Interest rate speculation almost overrides any other factor in equities regardless of sectors but one government contractor stock in particular has seemed to benefit from the Fed chatter and a strengthening dollar that usually coincides with such talk.
Shares in SAIC — which does nearly all of its business with the U.S. federal government — haveclimbed nearly 8 percent over roughly one month and added 58 percent for 52 weeks.
We profiled the McLean, Virginia-based company in last week’s Roundup as a positive performer in both earnings and revenue that has also helped lift the stock.
As many analysts have noted, GovCon stocks are somewhat buffered from currency fluctuations and other economic headwinds due to relatively stable defense and public services spending graphs.
With respect to SAIC, its predominantly domestic-based revenue profile and customer base make the company even more insulated from global economic factors and a potential opportunity for investors worried about a strong dollar if and when rates go up.
In a May 25 MarketWatch column, Philip Van Doorn quoted a report from Jefferies analyst Steven DeSanctis that recommends investors look to companies that derive at least 80 percent of sales in the U.S. as an alternative to those that rely on exports.
DeSanctis selected SAIC and 26 other mid-to-small cap companies in his report as stocks that meet that criteria and others with a simple directive on how to think about this U.S.-leaning direction.
“A stronger dollar, better U.S. economy, higher rates, and higher volatility all favor domestic over foreign” investments, he says.
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