Tickers in this Article: RTN, LMT, NOC, LLL, GD, BA, ATK
As football season gears up once again, it seems inevitable that the airwaves will fill with the old cliché that "defense wins championships". Whether that is true or not in sports, it is worthwhile for investors to ponder that question for themselves. Stocks in the defense industry have not performed notably well of late, so it may be time to consider whether this sector could do more than offer a little protection to an investor's portfolio.

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The Winding Down Of Two Wars
Perhaps it seems odd to consider defense stocks in the wake of the announcement of the end of active combat operations in Iraq. The reality is that war is not an equal opportunity to all companies. Oftentimes valuable system upgrades are pushed off and innovative new projects are delayed as an ongoing war siphons off any available resources.

With fewer active military hotspots, then, the military can begin to reallocate money to programs that have delayed, reprioritized, or otherwise starved of funds. (For more, see Guard Your Portfolio With Defensive Stocks.)

A Budget Strained to its Breaking Point
Given the sizable current budget deficits, the large external debt and the upcoming expansion of entitlement payments in the United States, the federal budget is a major worry these days. That, the thinking goes, puts defense spending back in the crosshairs.

Here too, though, the reality may end up different. The defense budget is actually not that large as a percentage of the total (about 5-6%) and it is unclear if major cuts would really solve the overall financial problems of the United States government. Moreover, it seems like cutting spending could be a tough sell when there is a constant drumbeat in the press about the threats posed by nuclear proliferation, terrorism, and cyber warfare.

Pirates, Terrorists and Hackers ... Oh My!
Even if the United States no longer has a major enemy to face down, there is no shortage of threats to national security. It was only about one year ago that Chinese hackers tried to break into the Pentagon's computers and dig out information on the new F-35 fighter. Since then, occasional news items or magazine articles have come out detailing that these attempts continue on a nearly daily basis. If that were not enough, there is an increase in piracy threatening shipping lanes, continued worries about global terror activity, and a seemingly constant need to advance the state of the art in electronics, sensors and signal intelligence.

Some Names to Consider
Plenty of stocks in the defense sector look cheap enough to be interesting, but it is improbable that any investor will buy more than one or two for a portfolio. So which stocks look like the best bets to focus on today?

Raytheon (NYSE:RTN) looks as though it should be relatively better-positioned for a more stagnant spending environment, and both the company's Phalanx anti-missile system and advanced sensor and intelligence technology business should continue to hold up.

Lockheed Martin (NYSE:LMT) seems like something of a bigger-risk/bigger-reward opportunity, which is strange as it is the world's largest defense company. It would seem that the company's lucrative manned fighter business could be vulnerable to the expansion of drones as well as cuts in orders for the new F-35 fighter. Still, those fears are likely overheated, as the military seems highly committed to purchasing and deploying a very sizable number of these new aircraft.

Following up on the drone theme, Northrup Grumman (NYSE:NOC) would deserve a look as well. It is not just drones here, though. Northrup also has a sizable electronics business as well as shipyards that can build massive vessels like aircraft carriers.

Investors most interested in the electronic warfare, detection/sensor, and secured communication aspect of defense should certainly take a look at L-3 Communications (NYSE:LLL). Investors certainly seem nervous about a recent increase in program losses, but that may be more of a testament to the company's position and size - when a company gets large enough, losses become basically inevitable. With leading positions in most of its markets, L-3 is definitely a name worth watching.

The Bottom Line
Other names like General Dynamics(NYSE:GD) and Boeing (NYSE:BA) could do well if the economy gets stronger and the commercial aerospace market improves, while investors in Alliant Techsystems (NYSE:ATK) may find something of a turnaround situation created by the chaos in NASA programs and fears that less active combat will mean less demand for ammunition. (For more, see A Big Military Budget's Big Winners Aren't Big Names.)

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