Put Some
Stock in Defense
by Yiannis G. Mostrous
Personal Finance
Defense
companies are back. And selectively, you should be a part of
the game.
The political and military
leadership of the U.S. is ready to pour some serious money into
the broad defense industry. A big portion of it will end up in
the coffers of the big defense contractors, resulting in big
gains for defense stocks. We've been pounding the table about
defense stocks; here's a review of some recent picks.
Defense spending bottomed
in 1998 and it's been rising ever since. Since the last presidential
elections, it's been our belief that defense spending will increase.
President George W. Bush's defense program was already picking
up steam, and after the September 11 attacks, it will come as
no surprise if the defense budget reaches as high as $400 billion
in the next few years.
The companies most
likely to profit are those that make command, communications/electronics
and intelligence equipment.
Raytheon (NYSE
RTN) (8.6 percent return) should be one of the defense winners.
The company's Patriot interceptor missiles impressed people all
over the world with their ability to hit remote targets and destroy
enemy missiles during the Persian Gulf War. This time around,
the company's electronics systems unit is ready to deliver its
air/missile defense systems, along with air combat and strike
systems. As we mentioned in the September 26 issue, Raytheon
is cheap relative to its peers and is a buy under 32.
Northrop Grumman
(NYSE NOC) (8.4 percent return) has strengthened its position
as one of the most important global aerospace and defense companies,
and remains one of the largest information technology (IT) suppliers
for the U.S. government.
Northrop has a backlog
of nearly $16 billion and projected revenues of $18 billion in
2003 and is expected to grow earnings at 10 percent per year
for the next five years. The stock recently hit a 52-week high
and there's some skepticism as to how much of the future growth
is priced into the stock. We have to wait and see how the integration
with Litton Industries will progress, as well as what share of
the new defense budget Northrop garners. Northrop Grumman
rates a hold."
Editor's Note: Yiannis
Mostrous is a Personal Finance analyst.
