Obama Effect Creates Opportunities in Defense Stocks

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 |  Includes: GD, LLL, LMT, NCO, RTN
by: Greg Feirman

Defense stocks have been getting crushed on the fear that Obama is going to cut back on defense spending. This has created some terrific opportunities.

Take a look at this table of five of the largest US defense contractors:

Company
Market Cap
Share Price
2009 EPS*
Multiple
Yield
Lockheed Martin (NYSE:LMT)
$24B
$59.96
$7.05-$7.25
8.4
3.8%
General Dynamics (NYSE:GD)
$16B
$41.05
$6.70-$6.75
6.1
3.4%
Raytheon (NYSE:RTN)
$16B
$37.71
$4.45-$4.60
8.3
3.0%
Northrop Grumman (NYSE:NCO)
$12B
$35.45
$5.15-$5.40
6.7
4.5%
L-3 Communications (NYSE:LLL)
$8B
$63.56
$7.12-$7.32
8.8
2.2%
Click to enlarge

* 2009 EPS are company forecasts

These are some pretty attractive valuations in my opinion. The dividends are nice too. Earnings from these businesses should be pretty stable regardless of the economy.

Disclosure: Top Gun has no position in any of the stocks mentioned in this post - for now!