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Tickers in this Article: NOC, GD, BA, RTN
The world is an unpredictable and dangerous place. Given North Korea's recent saber rattling and the U.S. talking about ratcheting up sanctions against Iran, not to mention the tensions that Israel is having with its neighbors, it seems the level of angst has been growing. But do these tensions mean that now is the time to consider investing in companies that are heavily engaged in the defense business?

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Time To Play Good Defense?
There is certainly a possibility that a larger scale conflict could break out. But in the near-term at least, it doesn't seem likely that the United States conducting a massive build up of its conventional forces. The United States already has a substantial force and has equipment stationed around the world in case a conflict breaks out. Also, the Obama administration has many other things to focus on including a still sluggish economy and a major oil spill, not to mention healthcare and upcoming Congressional elections.

Over time, however, defense companies like General Dynamics (NYSE:GD), Raytheon (NYSE:RTN), Boeing (NYSE:BA) and Northrop Grumman (NYSE:NOC) will probably do well as equipment will need to be replaced and new systems are likely to be needed as new foes challenge us, peace keeping missions arise or as our nation fights terrorists and others around the globe.

Drilling down to the company level, these names are also attractive on a price-to-expected earnings basis and given the growth the Street expects. For instance, General Dynamics trades at 9.5 times this year's estimate, which is $6.58 a share, and Wall Street expects the company to earn $7.07 a share next year. Raytheon trades at 10.1 times this year's estimate, which is $5.01 and Wall Street expects the company to earn $5.34 a share next year.

Boeing trades at about 15.9 times this year's estimate, which is $3.87 per share and Wall Street expects the company to earn $4.84 a share next year. And finally, Northrop Grumman trades at around 9.6 times this year's estimate, which is $5.99 per share and Wall Street is expecting it to earn $6.74 per share next year.

Dividends are another issue that is alluring. General Dynamics offers a dividend and the forward yield is more than 2.6%, while Raytheon offers a dividend and the forward yield is more than 2.9%. Meanwhile Boeing offers a dividend and the forward yield is more than 2.7%. And finally, California-based NOC offers a dividend and the forward yield is more than 3.2%.

The Bottom Line
In the near-term it is unlikely that the Obama administration will demand a massive build up of conventional forces due to the economic crisis and other issues. However, long-term the prospects for this space look attractive, and each of the above-mentioned companies could see substantial upside to their stock prices. (For related reading, take a look at Sinful Investing: Is It For You?)

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