"The weak start to 2008 has left many investors scrambling for a safe haven in which to stash their cash," notes Jocelynn Drake, who sees the defense sector as one such haven.
The analyst with Schaeffer's Investment Research explains, "The recent losses suffered by many of the defense-sector components has brought them back to long-term support, creating potentially strong buying opportunities."
"What do General Dynamics (NYSE: GD), Lockheed Martin (NYSE: LMT), Northrop Grumman (NYSE: NOC), and L-3 Communications (NYSE: LLL) have in common? These four defense stocks have enjoyed strong rallies during the past four years.
"In addition, they are all currently resting right near support at their ascending 10-month moving averages. These stocks have benefited from this long-term support level and could use their respective trendlines as springboards to launch them on the next leg of their uptrends.
"What also makes these stocks very appealing from a bullish perspective is that short-term options players are very skeptical of the stocks' outlooks. As a result, options speculators have loaded up on bearish bets toward these securities in an attempt to call a top to their rallies.
"For GD and LMT, put open interest outnumbers call open interest among options that are slated to expire in less than three months. Pessimism toward these stocks among options traders is resting very close to an annual high while the shares are sitting on support and their long-term uptrend remains intact.
"If you are interested in trying to capture some profits on these four defense companies should the successfully bounce off long-term support, options players should consider an in-the-money strike on an option that is not due to expire for at least three months, such as an April or May option.
"This will not only provide the option player with some cushion should the stocks not bounce as expected, but it will also provide you with the time needed for this bullish scenario to play out."
Each day, Steven Halpern's TheStockAdvisors.com offers the latest market commentary and favorite investment ideas from the nation's leading financial newsletter advisors.
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