Spade Defense Index -- The NASDAQ of the Decade? (BA, UTX, LMT, NOC, RTN, GD, BEAV, PCP)

Includes: BA, COL, GD, LMT, NOC, PCP, RTN, UTX
by: Eddy Elfenbein

Eddy Elfenbein submits: One of the hottest sectors of late has been defense and aerospace stocks. This decade's NASDAQ might be the Spade Defense Index (^DXS), which is up 125% since March 11, 2003. And lately it's been very strong, up 11.2% since January 23, 2006.

The defense industry is dominated by six major large-cap stocks; Boeing (BA), United Technologies Corp. (UTX), Lockheed Martin Corp. (LMT), Northrop Grumman Corp. (NOC), Raytheon (RTN) and General Dynamics Corp. (GD). While many of these companies have done well over the past three years, the really big gains have come from smaller players like BE Aerospace (BEAV) and Precision Castparts (PCP).

Though some have compared the war in Iraq to Vietnam, one area of difference is the behavior of stocks. Many defense stocks started underperforming the market in mid-1967, several months before the Tet Offensive, perhaps foretelling the end of American involvement.

Also, defense stocks peaked in mid-1985, more than four years before the Berlin Wall came down. Again, the market proved the Wisdom of Crowds.

But if the defense sector is telling us anything about the future, it's that we're going to be in Iraq a while longer.

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