Why I buy Raytheon stock

I thought it would be a good exercise to go over why I have certain securities in my portfolio. Peter Lynch says that if you can't tell a stock's story in a minute then you shouldn't own the stock.

I've been buying Raytheon stock every other week for the last five years, which means I've seen prices from about $75 to about $18. Thankfully I've bought shares mostly at the lower end. Also, I've been dollar-cost averaging into my Raytheon position, so I've bought more shares when the price was low.

Virtually the only reason I own the stock is because I work for Raytheon which matches my 401(k) contribution with company stock. I've sold shares as often as I am able, so this investment represents an opinion in the quality of the company's work environment more than in it's ability to make money for it's owners.

I worked as an intern for Raytheon for four summers and when I got out of UCLA, Raytheon Pasadena offered me a job working with JPL. I also was offered a job at the same starting salary with a dotcom startup in Santa Monica called US Interactive. Despite the possibility of a large IPO, I chose Raytheon. After an IPO at about $10 on August 9, 1999, USITQ reached a high of $92 on January 3, 2000. Fortunately I didn't even lookup the ticker at the time. Over the same time, Raytheon dropped from about $68 to about $25 on news of large "one-time charges" on earnings.

Raytheon had bought a number of divisions in the 1990s, including the part I work for which was originally a small "Beltway bandit" based in Maryland. First it was bought by Hughes, which was bought by GM, which sold bits to Raytheon. Both cars I've owned have been thanks to a GM employees discount I enjoy as a result of this convoluted acquisition path.

Raytheon also bought parts of Texas Instruments and an engineering operation, and sold off its Amana appliances division. Not surprisingly, the company had problems integrating all of these businesses. Only within the last year or so has Raytheon shed most of the baggage of acquisition and focused on its core business.

I haven't spent much time analyzing the numbers, but I don't think Raytheon is a good value at current prices. The company has consistently paid out a 20 cent quarterly dividend, which works out to 2.5% yield, but I don't see how earnings can grow. We might be in a long defense boom cycle because of September 11, but the market has already taken that into account.

Meanwhile, shares of US Interactive are not even worth the paper they are printed on, and the Santa Monica office has been closed down. Raytheon hasn't been a great stock, but it's my best investment so far.