An Investor's Guide to Profiting From the Government Shutdown

An Investor's Guide to Profiting From the Government Shutdown
The longer lights remain dark in Washington, the cloudier the forecast will be for some of these federal contractors listed as short candidates by Goldman Sachs (Photograph by Andrew Harrer/Bloomberg)
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, 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 (Defense/Aircraft) | $36.9 billion in contracts | 80 percent of revenue

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

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

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

• BAE Systems (Defense) | $6.3 billion in contracts | 24 percent of revenue

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

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

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

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

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

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

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

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

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

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

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

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

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

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

• Raytheon (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.

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