Government Shutdown

An Investor's Guide to Profiting From the Government Shutdown


An Investor's Guide to Profiting From the Government Shutdown

Photograph by Andrew Harrer/Bloomberg

To most of the U.S., today’s government shutdown comes as a maddening peak in a long-rising fever line of political dysfunction. For hundreds of thousands of federal employees and their families, on the other hand, the shutdown means lost work and missing paychecks. And to the biggest private-sector contractors doing work for the government, the shutdown carries real business risks.

To the folks at Goldman Sachs (GS), that means today could be a big trading opportunity. The investment bank has been sending clients a number of strategies to protect themselves and possibly profit from the gridlock in Washington. The main gambit: Find companies that do a lot of business with the government and then buy puts—contracts for the right to sell a company’s shares at a certain price in a certain time period.

Let’s say you have a put option to sell one share of a hypothetical company called, I don’t know, “Congress” at $10. If squabbling and poor results drive the price down to $4, you can buy a share on the open market for $4 and exercise the put to sell at $10, booking a $6 profit.

In light of Goldman’s strategic advice, we crunched data from Bloomberg Government on the top U.S. contractors in a number of categories to see what public companies might get pinched in a protracted shutdown. Here’s the list:

Company (Industry) | Outstanding Contracts in Dollars | Percent of Revenue (12-month trailing)

Lockheed Martin (LMT) (Defense/Aircraft) | $36.9 billion in contracts | 80 percent of revenue

Shaw Group (SHAW) (Construction) | $900 million in contracts | 15 percent of revenue

Textron (TXT) (Defense/Drones) | $2.4 billion in contracts | 20 percent of revenue

General Electric (GE) (Engines) | $2.7 billion in contracts | 2 percent of revenue

BAE Systems (BA/:LN) (Defense) | $6.3 billion in contracts | 24 percent of revenue

Caterpillar (CAT) (Facilities/Parts) | $500 million in contracts | 1 percent of revenue

Tyson Foods (TSN) (Food) | $600 million in contracts | 2 percent of revenue

Royal Dutch Shell (RDSA:NA) (Fuel) | $2.9 billion in contracts | 1 percent  of revenue

Booz Allen Hamilton (BAH) (Consulting) | $4.1 billion in contracts | 71 percent of revenue

Oshkosh (OSK). (Vehicles) | $1.6 billion in contracts | 20 percent of revenue

Fluor (FLR). (Logistics) | $2.1 billion in contracts | 7 percent of revenue

Vesuvius (VSVS:LN) (Metals/Mining) | $300 million in contracts | 19 percent of revenue

Humana (HUM) (Medical Services) | $3.5 billion in contracts | 9 percent of revenue

McKesson (MCK) (Medical Supplies) | $4.6 billion in contracts | 4 percent of revenue

Northrop Grumman (NOC) (Defense/Research) | $12.5 billion in contracts | 50 percent of revenue

General Dynamics (GD) (Defense) | $15.4 billion in contracts | 49 percent of revenue

Ball (BLL). (Aerospace) | $300 million in contracts | 3 percent of revenue

Dell (DELL) (Technology/Equipment) | 1.2 billion in contracts : 2 percent of revenue

FedEx (FDX) (Transportation) | $1.4 billion in contracts | 3 percent of revenue

Raytheon (RTN) (Defense/Weapons) | $14.5 billion in contracts | 59 percent of revenue

Given the scale of business these companies do with the government, this week’s shutdown might be a mere hiccup. And many of the names on the list above rely on Uncle Sam for only a tiny slice of revenue. But the longer the government remains dark, the cloudier the forecast will be for some of these contractors.

Kyle-stock-190
Stock is an associate editor for Businessweek.com. Twitter: @kylestock

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Companies Mentioned

  • GS
    (Goldman Sachs Group Inc/The)
    • $175.4 USD
    • -0.86
    • -0.49%
  • LMT
    (Lockheed Martin Corp)
    • $170.04 USD
    • 0.07
    • 0.04%
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