Out of Ammo

Last week, The Army Field Support Command submitted a request for 300 million to 500 million more 5.56 mm, 7.62 mm and .50 caliber cartridges per year for the next five or more years for use in current and future training and combat. The ongoing battles in Iraq and Afghanistan have severely depleted the stock which was already reeling from the military cutbacks of the Clinton years.

Because of attacks on supply convoys in Iraq, the military now requires all personnel to meet marksmanship standards like frontline soldiers do. This need to increase training for thousands of servicemen combined with combat activity have created the shortage.

Out of this bullet shortage has risen an investment opportunity. Alliant Techsystems (NYSE:ATK), runs an army owned bullet factory in Lake City Missouri and creates about 1.2 million bullets per year, way short of the army's needs.

ATK has said they can expand output up to 300 million per year but the army will likely contract the work in the private sector. ATK will continue producing at current levels and perhaps higher even if much of the new work is contracted outside. The announcement of the shortage has sent ATK stock from $58 to $60 in two days.

General Dynamics (NYSE:GD) has submitted what looks like the only proposal thus far to the army regarding the bullet shortage. GD has compiled three small bullet suppliers capable of meeting the new bullet demands. Olin Corp. (NYSE:OLN), through its subsidiary Winchester, and two private may win this coveted contract. GD and OLN look to increase share value of this contract does go through.

Luke Hodgens is the editor of
Powerhouse Profits a conservative investment newsletter. Click here to read more of his cogent analysis."