"Defense stocks never looked more attractive than they do now," says Jim Powell, who looks at two favorite ways to play the defense sector.
In Global Changes & Opportunities Report, he says, "The drop in defense stocks has more to do with the overall bear market in stocks than to any problems within the sector itself."
"Recent quarterly earnings from many defense companies are up, with signi?cant gains in revenues and earnings.
"Defense stocks have also been pushed down due to worries that the presidential election might go to Senator Obama, who is not expected to be a strong a supporter of the military. Historically, however, Republican and Democratic spending on defense has been about the same.
"Some investors may also be nervous about buying defense stocks if the U.S. is likely to reduce its presence in Iraq over the next few years.
"However, in the five years American troops have been in the country, billions of dollars worth of equipment has been ruined by the harsh environment. All of it must be replaced.
"If you would like a managed fund that attempts to stay with the strongest military suppliers, you should consider the Fidelity Select Defense & Aerospace Fund (FSDAX).
"The no-load fund comes closer than its rivals to reflecting our defense portfolio. We've owned this Fidelity fund since January 1995. FSDAX has since gone up an impressive 590%. The new Cold War should keep the fund moving forward.
"If you would like a diversified position that tracks the entire defense industry, I recommend the PowerShares Aerospace & Defense ETF (ASE: PPA).
"The investment mirrors the movements of the SPADE Defense Index that consists of over 50 companies involved in defense, homeland security, and space technology.
"Defense contractors in the index produce naval vessels, military aircraft, missiles, satellites, munitions, combat communication systems, and related equipment.
"The homeland security group makes border security equipment and various types of biometric identification systems, sectors of the defense industry that seem to have a very bright future."
Steven Halpern's TheStockAdvisors.com offers a daily look at the latest market commentary and favorite stock picks and investment ideas from the nation's leading financial newsletter advisors.
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Reader Comments (Page 1 of 1)
9-26-2008 @ 1:51PM
Danny L. McDaniel said...
The days of Cold War defense spending have been over for nearly 20 years, but many people still think it is our number one spending priority. Whoever is elected in November will have to cut military spending and , may by necessity, revert back to a simplier and less costly military structure. ie, some form of complusory military service and less techinically sophicated hardware.
Defense stocks are not where the action is at. The US will have the most advanced weapons of any country but so few of them because of the high cost that they are ineffectual. What is needed is more manpower and less sophication. The greatest military handware ever produced and not enough of it to make a difference.
Being a military "superhero" in the modern world is not in America's budget, when one considers all the entitlements that have to be paid first. Iraq is proving that point out.
Danny L. McDaniel
Lafayette, Indiana