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Friday, 11/21/2003

A Little on the Defensive Side
By Nich Sheldon
NOC - Northrop Grumman Corp

Company Description

Northrop Grumman Corporation is a $25 billion global defense company, headquartered in Los Angeles, Calif. Northrop Grumman provides technologically advanced, innovative products, services and solutions in systems integration, defense electronics, information technology, advanced aircraft, shipbuilding and space technology. With approximately 120,000 employees and operations in all 50 states and 25 countries, Northrop Grumman serves U.S. and international military, government and commercial customers.

[Source: Company Press Release]

Reasons to Invest:

Over the course of the past few years, American's have taken several steps to heighten security and once again make America a safe place to live. Heck, just over the past month we have seen terrorist alerts tanking foreign markets, thus leading to the further sell-off of US indices. Quite a number of the defense companies have been landing grants and other cash awards to help aide our military in its attack against terrorism, but only one company has been doing so on a consistent basis. Northrop Grumman Corporation (NYSE:NOC) is this week's Drip of the Week. We are justifying this Drip of the week based upon NOC's quarterly results, financial strength, dividend-yield and current price level.

A Look at the Figures

Over the first three quarters of the 2003, NOC's sales rose 54% to $19.11 billion. Their net income from continuing operations before an accounting change applicable to common rose 31 percent, or $593 million. The company reported that these results reflect strong contributions from the company's two new segments, which are particularly offset by increased operating expenses. On top of their nothing shy of impressive sales and income increases over the first three quarters, I also am attracted to their revenue growth of 26.90 percent.

A quick look at their revenue history and I found something very interesting. In 2000 Northrop Grumman Corporation announced revenues of 7,618 million. In 2001 their revenues were reported at 13,171 million. For the first three quarters of 2003 they reported revenues of 19,112 million, which already overshadows the entire year of 2002's revenues, which came out to 17,206 million. This is key, especially when considering the company still has another quarter to report for 2003. With this in mind it is easy to note that their revenues are steadily increasing on a yearly, almost quarterly, basis, which is good news for us longer-term investors.

If you look at last year's closing price on November 21st, 2002 the company closed at 96.00. Today, one year later NOC closed at 93.25, which is merely 2.75 points lower. On January sixth the company hit its current 52-week high of 101.10 and on March 12th the company reported its 52-week low of 78.27. What I find interesting about these closing prices is the fact that over the course of the past 52-weeks, 85 could be deemed psychological support for the stock. Yet if one were to look at the last half of July through the first half of September 90 is notably short- term support for this two-month period. The reason I feel the need to explain this is because over the past couple weeks NOC has again began to use 90 as support for higher grounds, which could be a good sign as to what's to come for the stock.

Dividend Information

On the 19th of November, Northrop Grumman's Board of Directors Announced a quarterly dividend of $0.40 per share on their common stock. The payable date for the dividend is set for December 13th, 2003 to shareholders on record December 1st. The Board also declared a dividend of $1.75 per share on the company's Series B convertible preferred stock, payable on January 15th, 2004 to shareholders on record January 2nd. NOC yields a nice dividend percentage of 1.72 and offers a yearly dividend of 1.60. Keeping this in mind, you can't say that Northrop Grumman doesn't offer a nice incentive to add them to your portfolios.

Closing Thoughts

I suspect at NOC's current price level that the stock is ready to keep the bullish trend rolling. On November 19th, Northrop Grumman-Miltec Team was awarded the U.S. Army contract for Compact Kinetic Energy Missiles and was also awarded $175 million for Air Force security protection. On top of this, the company just earned its International Quality Certification (on the 20th), which signifies their common quality management system meets stringent industry requirements. I imagine that this news is part of the reason why NOC is trending higher, but I am optimistic that the stock is on its way to breach short-term psychological resistance of 95. If this is the case, and the stock can trend over its August 21st, 2003 high of 97.34, I suspect the stock is headed back to 100.00 to January highs of 101.10. What I am getting at, is that if NOC can climb over resistance of 95, and turn that resistance into support, a few years from now, we might be lucky enough to say that we added the stock to our portfolio at the right time. With this in mind I am putting a two-three year price target of 125.00, on NOC.

This ends another exciting episode of the Drip of the Week. Stay tuned next week, as we will spotlight another stock worthy of the limelight.

Until Next Week,
Nich Sheldon

Broker Recommendations

Strong Buy         6
Buy                4
Hold               8
Sell               0
Strong Sell        0

Brokers Covering  18

DRIP Information:
Shares to Qualify = 1
Auto-reinvestment = No
Accept Foreign Accounts: Yes
Temper Enrollment: Yes

Min/Max Investment = $100 to $1,000/Month

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Transfer Agent:
First Chicago Trust

Corporate Headquarters:
1840 Century Park East
Los Angeles, CA 90067
Phone: (310) 553-6262
Fax: (310) 553-2076


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