Obama Effect Creates Opportunities in Defense Stocks

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 (LMT)	$24B	$59.96	$7.05-$7.25	8.4	3.8%
General Dynamics (GD)	$16B	$41.05	$6.70-$6.75	6.1	3.4%
Raytheon (RTN)	$16B	$37.71	$4.45-$4.60	8.3	3.0%
Northrop Grumman (NCO)	$12B	$35.45	$5.15-$5.40	6.7	4.5%
L-3 Communications (LLL)	$8B	$63.56	$7.12-$7.32	8.8	2.2%

* 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!

Comments

[DRH:]

Wholeheartedly agree that the defense stocks are a good value.

However, the fear that Obama may cut defense is real, not imagined. I think you look at which companies have very long term, high dollar value contracts. In these cases, the gov't may not be able to easily back out of it (without getting hit with high costs), and the contracts don't end until Obama's term is practically over.

Mar 03 07:46 AM

[rdondamike:]

Even though the numbers are alarming they are some what inflated when referenced to an earlier time period. The increases are real and are need for concern. Liquidity in the markets is needed to provide for the increases in demand which has not been met either.

Mar 06 11:20 AM