Revealed: Dylan Jovine’s “Project Overmatch” Stock (War Games)

Dylan Jovine is back with another teaser for his newsletter, Behind the Markets.

This presentation is called Project Overmatch (and sometimes called "War Games") and focuses on a "small defense contractor."

According to Jovine, this contractor could give you gains as high as 35,960%.

Of course, Dylan wants you to pay him to reveal the name of the stock, but I have good news!

He left enough clues in the presentation to figure out the name of the stock he's pitching.

I reveal it below for free and give you information on the stock so you can determine if it's worth buying.

Let's get into it now!

What Is Project Overmatch?

I've been covering Dylan Jovine for a long time, and he's always hyping up a war between America and China.

In fact, he usually gives a specific date for when he thinks a war will break out.

Of course, these dates pass without anything happening, but he really only gives specific dates to create urgency.

He wants you to feel like you're going to miss out if you don't buy his newsletter.

Anyway, back to the teaser.

Jovine is pitching the idea that a war against China is inevitable and our military is facing a big problem.

China has weapons that we can't defend against and that will cause a lot of damage to our Navy.

But Jovine claims one company is going to ensure our military victory and bring our defense systems into the 21st century.

So what kind of technology is Jovine hinting at?

He's talking about hypersonic missiles.

Imagine a speeding bullet, but way, way faster – like 5 to 25 times the speed of sound! That's the realm of hypersonic missiles, a cutting-edge technology that major powers are scrambling to develop. Here's the lowdown:

Speed Demonds: These missiles zip through the air at scorching speeds, making them incredibly difficult to stop. Think minutes, not hours, to reach distant targets. Unlike slow jets, they fly low, dodging radar and defenses like a fighter pilot on steroids.

Two Types of Flyers: These speedsters come in two flavors:

• Hitchhikers: Hypersonic Glide Vehicles (HGVs) piggyback on rockets to get up to insane speeds, then detach and glide towards their target like a hot rock falling from the sky.
• Jet Jockeys: Hypersonic Cruise Missiles have their own engines, like futuristic jets with scramjets (supersonic combustion ramjets) that gulp air at high speeds, keeping the fiery ride going.

Why the Fuss? These are military game-changers for several reasons:

• Fast and Furious: Their speed makes them hard to track and intercept, potentially catching enemies by surprise.
• Low and Sneaky: Flying low makes them radar-invisible, adding another layer of stealth.
• Maneuver Masters: Some can change direction mid-flight, making them even more unpredictable.

The Catch: It's not all sunshine and hypersonic speeds. These are complex machines facing extreme heat and forces, pushing the limits of science and engineering. Plus, developing and testing them is expensive and challenging.

The Future Is Fast: Hypersonic missiles are still in their early stages, but they represent a significant leap in military technology. The race is on for countries to master this high-speed game, with implications for global security and defense landscapes for years to come.

Aerojet Rocketdyne Holdings Is The Stock

There's only one company that matches the clues left behind by Jovine and that's Aerojet Rocketdyne, which is now owned by L3Harris Technologies. So you'd be investing in L3Harris Technologies if you wanted exposure to Aeroject Rocketdyne.

Aerojet Rocketdyne Holdings is a major player in the aerospace and defense industry, specializing in rocket propulsion systems and related technologies. Their work spans various fields, including:

• Space launch vehicles: They build engines for NASA, SpaceX, and other launch providers, powering rockets like the Atlas V and Delta IV Heavy.
• Tactical missiles: They provide propulsion systems for missiles like the Tomahawk and UGM-133 Trident II D5, used by the U.S. military.
• Civil aviation: They contribute to commercial aircraft engines through joint ventures and technology development.

Hypersonic missiles are a particular area of focus for Aerojet Rocketdyne. These incredibly fast missiles travel at speeds exceeding Mach 5 (five times the speed of sound), posing significant challenges for both offense and defense. Aerojet Rocketdyne addresses these challenges through:

• Scramjet technology: They are developing and testing cutting-edge scramjet engines, which use the hypersonic airflow itself for combustion, enabling sustained high speeds.
• Solid rocket boosters: They provide powerful boost motors that accelerate hypersonic missiles to the point where scramjets can take over.
• Warhead solutions: They have expertise in designing and building payloads for hypersonic missiles, ensuring accuracy and effectiveness.

Government Contracts: Naturally, with their involvement in critical defense technologies, Aerojet Rocketdyne holds several significant contracts with the US government:

• DARPA HAWC program: This program involves developing a hypersonic cruise missile system, where Aerojet Rocketdyne's scramjet engine has successfully undergone test flights.
• Lockheed Martin's HALO: They are supplying the propulsion system for this air-launched hypersonic weapon developed for the US Navy.
• Solid rocket motor development: They have ongoing contracts to manufacture solid rocket motors for various missile systems, including ballistic missiles and interceptors.

Is L3Harris Technologies Worth Buying?

Thinking about investing in L3 Harris Technologies to get exposure to Aerojet Rocketdyne?

Here's a breakdown of everything about this company that you should know:

Fundamentals

When it comes to company fundamentals, L3Harris Technologies presents a mixed bag of strengths and weaknesses to consider for potential investment:

Strengths:

• Revenue growth: L3Harris has shown steady revenue growth over the past five years, exceeding $18.6 billion in the trailing twelve months (TTM). This indicates a healthy and expanding customer base.
• Profitability: While not exceptional, L3Harris maintains an average operating margin of 11.44% (TTM), indicating efficient cost management and decent profit generation.
• Debt management: L3Harris' debt-to-equity ratio of 63.79 is below the industry average, suggesting manageable debt levels and potentially lower risk for investors.
• Dividend history: L3Harris has a long history of paying dividends, currently yielding around 2.5%, indicating a commitment to rewarding shareholders.

Weaknesses:

• Return on equity (ROE): L3Harris' ROE of 4.3% is below the industry average, suggesting that the company is not generating as much profit from its shareholder equity as some competitors.
• Payout ratio: L3Harris has a high payout ratio of 65% (3-year median), meaning it distributes a significant portion of its profits to shareholders, which could limit future growth potential.
• Growth prospects: While L3Harris operates in a growing defense market, its future growth prospects may be constrained by geopolitical uncertainties and potential budget cuts.

Overall, L3Harris presents a stable company with decent profitability and a history of rewarding shareholders. However, the low ROE and high payout ratio raise concerns about future growth and potential vulnerability to economic downturns.

Industry Analysis

L3Harris operates in two primary industries: Aerospace & Defense and Commercial (mainly Public Safety and Communications). Let's break down the industry landscape for each:

Aerospace & Defense:

• Growth: Strong and consistent, driven by geopolitical tensions, rising defense budgets in major countries, and increased demand for advanced technologies like hypersonic weapons and artificial intelligence.
• Competition: Intense, with Lockheed Martin, Raytheon Technologies, and Boeing being major players. L3Harris has a strong foothold in niche markets like tactical communications and intelligence but faces pressure in broader areas.
• Risks: Government budget cuts, potential arms control agreements, and evolving technological advancements could disrupt growth.

Commercial:

• Public Safety: Stable growth driven by ongoing demand for communication equipment and security solutions from police, fire, and emergency services. L3Harris is a prominent player in this market.
• Communications: Diverse and fragmented, with opportunities in areas like 5G network security and critical infrastructure protection. L3Harris needs to focus on specific niches to stand out.
• Risks: Economic downturns could impact government and private sector spending in these areas. Dependence on specific contracts can also pose risks.

Overall L3Harris positioning:

• Strengths: Strong presence in niche markets within Aerospace & Defense, established brand in Public Safety, diverse commercial offerings.
• Weaknesses: Lags behind major competitors in broader defense areas, faces uncertainty in fragmented commercial markets.
• Opportunities: Leverage expertise in niche technologies, expand into growing areas like cybersecurity and space, capitalize on increasing commercial demand for secure communications.
• Threats: Government budget fluctuations, intense competition, technological disruption.

Conclusion:

The industry landscape offers both opportunities and challenges for L3Harris. Its success will depend on its ability to navigate competition, capitalize on niche strengths, and adapt to evolving technologies and market trends.

Market Conditions

When considering the market conditions for L3Harris Technologies, here are some key factors to analyze:

Current Market Sentiment:

• Defense sector: Largely positive, fueled by increased geopolitical tensions and higher defense budgets globally. This bodes well for L3Harris' core business.
• Commercial sector: More mixed, with pockets of growth in areas like secure communications and public safety technology, but vulnerable to economic downturns. L3Harris' diversified offerings provide some insulation.
• Investor sentiment towards L3Harris: Generally positive, but with concerns about the company's valuation and future growth prospects.

Market Drivers:

• Geopolitical landscape: Ongoing conflicts and uncertainties, particularly in Europe and Asia, are driving demand for advanced defense technologies, benefiting L3Harris.
• Technological advancements: Rapidly evolving areas like AI, hypersonics, and cyberwarfare create both opportunities and challenges for L3Harris.
• Economic conditions: Potential for global economic slowdown could impact government and private sector spending, hindering growth in both defense and commercial markets.

Specific Market Risks for L3Harris:

• Government budget cuts: Fluctuations in defense spending can significantly impact L3Harris' revenue and profitability.
• Competition: Intense competition from larger players like Lockheed Martin and Raytheon can squeeze margins and limit market share.
• Supply chain disruptions: Global supply chain challenges could increase production costs and delay deliveries, negatively impacting L3Harris' performance.

Overall Market Assessment:

The strong defense sector is a tailwind, but economic uncertainties and intense competition necessitate careful consideration. Investors should closely monitor geopolitical developments, technological advancements, and L3Harris' ability to adapt and innovate to make informed decisions.

Valuation

Evaluating L3Harris Technologies' valuation requires assessing various metrics and considering external factors:

Traditional Valuation Metrics:

• Price-to-Earnings (P/E) Ratio: L3Harris' current P/E ratio of 24.8 is slightly above the sector average of 20.8, suggesting a potential premium valuation.
• Price-to-Book (P/B) Ratio: At 2.14, L3Harris' P/B is higher than the average of 1.79, indicating that investors might be paying a premium for the company's assets.
• Enterprise Value/EBITDA Ratio: L3Harris' EV/EBITDA of 16.94 is within the sector range of 10-20, suggesting a somewhat fair valuation based on operating cash flow.

Growth Potential:

• Analysts' projected future earnings growth for L3Harris is around 5-7%, which might not justify the current premium valuation compared to its larger competitors.

Market Sentiment:

• Investor sentiment towards L3Harris has been positive, potentially contributing to the higher valuation.

External Factors:

• Rising interest rates and potential economic slowdown could negatively impact the stock price, especially if growth expectations diminish.
• Geopolitical uncertainties and continued defense spending could bolster the valuation.

Overall Valuation Assessment:

L3Harris' valuation appears slightly inflated based on traditional metrics but supported by positive market sentiment and the strong defense sector. However, future growth expectations and external factors like economic conditions need careful consideration before investing.

Dividend History

L3Harris boasts a strong and consistent dividend history, making it a potential draw for income-oriented investors. Here's a breakdown of its key features:

• Current Annual Dividend: $4.56 per share, declared quarterly ($1.14/quarter)
• Dividend Yield: Approximately 2.17% based on current share price (as of January 3, 2024)
• Payout Ratio: Around 65% (3-year median), indicating a significant portion of profits distributed to shareholders.
• Dividend Growth: L3Harris has increased its dividend annually for the past 22 years consecutive, demonstrating a commitment to rewarding shareholders. The most recent increase was 10% in November 2023.

Historical Data:

• 2023: $4.56 per share
• 2022: $4.15 per share
• 2021: $3.77 per share
• 2020: $3.43 per share
• 2019: $3.12 per share

Strengths of L3Harris' Dividend:

• Long history of consistent increases: This demonstrates a reliable track record and commitment to shareholder value.
• Solid payout ratio: While on the higher side, it indicates ample room for future dividend growth.
• Strong balance sheet and manageable debt: These factors suggest the company has the financial stability to sustain dividend payments.

Considerations for Investors:

• Higher payout ratio: Compared to other defense companies, L3Harris' payout ratio is higher, which could limit future growth potential.
• Dependence on future earnings: Growth and stability of dividends ultimately rely on the company's future financial performance.
• Investment goals: While the dividend yield is respectable, L3Harris may not be the best choice for investors seeking aggressive capital appreciation.

Overall, L3Harris' dividend history offers a compelling narrative for income-oriented investors seeking reliable payouts with potential for future growth. However, it's essential to consider the company's overall financial health, future growth prospects, and your own investment goals when making a decision.

Conclusion

So that's the end of my post covering Dylan Jovine's latest stock teaser.

He's hyping up war, and he's trying to convince you to make a play based on hypersonic missiles (and trying to get you to buy his newsletter).

What do you think?

Is war between China and America inevitable, and are we going to buy defense contractor stocks to prepare?

Let me know below in the comments!