Purchased Huntington Ingalls Industries

Huntington Ingalls Industries

Today, November 30, 2021, the market saw a decline of 650 points with the DOW Jones Industrial Average. This pushed the price of Huntington Ingalls Industries lower by 2.32% well below the predetermined intrinsic value of $185. The Value Investment Fund’s buy price is $177 per share. At 1:15 PM, the price dipped to the buy point as set by this site’s Value Investment Fund for this particular potential investment in the Military Contractors Pool of investments. The Fund purchased 112.9943 shares at $176 each (paid $177 including the $1 per share transaction fee). Total invested capital equals $20,000.

The largest subsidiary of Huntington Ingalls Industries is their Newport News Shipbuilding division. They are the sole builder of the United States Navy’s aircraft carriers. Newport News Shipbuilding has been in business for over 140 years. Huntington Ingalls Industries (HII) has three distinct segments of operations. In addition to Newport News Shipbuilding, HII has its Ingalls division which builds non-nuclear combatant vessels including Coast Guard Cutters. A third division is their Technical Solutions segment which provides intelligence services to the Navy. With 44,000 employees and a backlog of $50 Billion of work, HII is an excellent inclusion in any value investing portfolio. With this site’s Value Investment Fund, this particular company is included in the Military Contractor’s Pool of investments.

Currently, there are 37 potential investments among six pools. Every single one, with the exception of Huntington Ingalls Industries, is selling at or near their respective historical highs. Thus, opportunities to buy low are non-existent in this current market. Having an opportunity such as this is a welcomed relief. The sell point for this stock is preset for $251 per share netting $73 per share gain after fees (another $1 per share fee at the sale of the stock). It is expected that it will take approximately six quarters to recover to this preset market recovery price point. The following illustrates the expected average annual return assuming different number of quarters to reach the market recovery point of $251.

# of Quarters                      Actual Return              Annualized Return
       2                                          41.24%                             82.71%
       3                                          41.24%                             54.94%
       4                                          41.24%                             41.24%
       5                                          41.24%                             32.99%
       6                                          41.24%                             27.52%
       7                                          41.24%                             23.59%
       8 (Two Years)                     41.24%                             20.60%

Even if it takes two years for this stock to hit a $251 market recovery price point (last recorded in the first quarter of 2020), the return on the investment is still exemplary at 20.6%. Furthermore, over the course of two years, it is expected that this stock will pay out approximately $9 in dividends. Thus, the effective annualized return will exceed 23%. 

Any time recovery period of six or less quarters will generate a desirable 30% plus return on the investment (dividend inclusive). The downside risk of the investment remaining at a depressed price for multiple years is insignificant (less than 3%). Huntington Ingalls Industries is simply an outstanding buy at this price.

Now a value investor exercises the fourth principle of value investing – PATIENCE. Act on Knowledge.