One area where the U.S. government is spending more than ever is cybersecurity. We live in the digital age and cybersecurity and national security protection mechanisms are more important than ever, asserts Tony Sagami, editor of Weiss Ultimate Portfolio.
In recent months, dozens of federal agencies and departments were hacked in the “worst ever” cyberattack in history. The attack, believed to be of Russian origin, was a sophisticated espionage operation with the goal of stealing government and military secrets.
The 2021 budget for cybersecurity is a whopping $18.8 billion. That’s just federal; state and municipalities will spend additional billions.
A big chunk of that money will go to a small handful of trusted government contractors, since Uncle Sam has a strong tendency to stick with the same contractors over and over, especially when it comes to private, sensitive or national security issues.
Booz Allen Hamilton Holding Corp. (BAH), founded in 1914, was one of the first corporate consultants. Today, it is one of the most trusted cybersecurity, data analytics and digital solutions providers on the planet. Here are four reasons we believe the a stock is headed much, much higher.
Reason 1: The Best Customer in the World
The term “Beltway Bandits” has a negative connotation, but it’s an accurate acknowledgement of how wildly profitable doing business with governments can be.
Booz Allen is one of the true blue bloods of the Beltway Bandits. Proof: Out of the $7.8 billion that Booz Allen pulled in last year, a whopping 97% came from government agencies and military. Wow!
Heck, if you read through Booz Allen’s annual report, you’ll find the words “U.S. Government” mentioned in almost every paragraph.
And business is not suffering one bit from the coronavirus pandemic. Whenever an agency of the government needs to create a new website — such as State Department travel restrictions or an IRS site that tracks the status of the coronavirus stimulus checks — they call Booz Allen.
While almost all of corporate America is begging for business, Booz Allen is enjoying a wave of unexpected new business from the crisis. In fact, Booz Allen has not laid off, furloughed or reduced hours or pay for any employees.
Reason 2: Rock-Solid, Super Steady Growth
Over the last five years, Booz Allen has steadily grown its revenues from $5.3 billion in 2015 to $7.8 billion last year. And there is a lot more where that came from.
Do you think the government is going to need more or less cybersecurity protection going forward? Do you think the world will become more or less dangerous in the future? Do you think the amount of government data will stay the same or increase in the future?
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I’m not trying to be silly; there is no question that the government’s tech needs are only going to grow larger.
Here’s a real-life, current example: The government is furiously using big data and artificial intelligence to evaluate, measure and calculate the best way to battle the coronavirus pandemic. Yes, Booz Allen has its fingers in that battle.
Reason 3: Big, Wide Moat of Classified Information
Booz Allen has more than 26,000 employees. Of those, 29% are military veterans and 66% hold security clearances from government.
You see, the process of winning government contracts — especially military contracts — is very different than in the private world.
A company and its staff must pass vigorous background checks and gain security clearance. That vetting substantially narrows the competition.
And because so many of Booz Allen’s staff were formerly top government officials, it has an intimate understanding of government programs, connections to the key government decision makers and strong mutual trust.
Illegal? No. Cozy? Absolutely. And that is why Booz Allen is assured to receive many, many more U.S. government contracts.
Reason 4: Billion Dollar Backlog
Business is so good that Booz Allen can’t keep up with the orders that the government is giving it.
The company is sitting on an order backlog of $24.6 billion, which is basically three years’ worth of business ... guaranteed.
Booz Allen isn’t the type of stock that will double overnight, but it has one of the most reliable business models on the planet from the best customer on the planet.
