It was only last week that Goldman Sachs (NYSE: GS) caused havoc in the stock market (or at least lead the charge) downgrading Citigroup Inc.(NYSE: C), and General Motors (NYSE: GM) among others, but now they have started to express concern that some of the defense sector stocks may be vulnerable to the next president's ax.

Bloomberg is reporting that last month Goldman Sachs was issuing warnings to their clients about the fact that Barack Obama and John McCain both may seek to reduce or end big ticket defense purchases such as Lockheed Martin (NYSE: LMT) F-22 fighter and the Army's $159 billion Future Combat Systems, a modernization plan jointly managed by Boeing Co (NYSE: BA) and SAIC Inc.

It was only a few weeks ago I posted Chasing Value: General Dynamics & Raytheon: The defense does not rest and things continued to look bright until a few days later, perhaps after the GS behind the scenes warning started to have an impact on the market that the sector took a mysterious swoon -- now I know why.

If Goldman Sachs, one of the few investment houses with any credibility left, makes a move everyone else seems to want to get out of the way.

I have viewed the defense sector favorably this year and will not abandon ship because GS is getting cold feet. They have been rather negative on everything lately and I do not think the (stock) world is coming to an end.

The Bloomberg article notes that while some programs will be cut others will be added. It is all a guessing game as either presidential candidate will want to review the entirety of defense expenditures in a new administration.

Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture & planning firm. He writes the columns Chasing Value and Serious Money. Disclosure: I own shares of GD.

In recent months I have been recommending that investors take a look at the defense sector as a safe haven during this erratic stock market -- erratic and down. My most recent post on the subject was Chasing Value: Raytheon (RTN) up on earnings & 2008 outlook. The defense sector has beaten the S&P 500 index for eight years running and this year may mark the ninth straight.

In a previous post I trumpeted General Dynamics Corporation (NYSE: GD) and still believe in the stock. The price-to-sales is a modest 1.33. The P/E of 16 and dividend are average, but it has a healthy ROE near 20%. If you believe the forward looking P/E it is only 14. GD makes the Gulfstream aircraft for the wealthy jet-setter and the Abrams tank for the military. How many of those will need parts or replacement in the coming years?

When I was evaluating my 2008 picks I looked at most of the large defense contractors and included RTN over GD. If you look at the chart below and the original story Chasing Value: General Dynamics (GD) looking long and flying high!, you will find I was looking at General Dynamics around $90 a share. We bought in at $88 so you know I like it even more in the area of $83 where it is trading now.

Defense sector favorite Ratheon Co (NYSE: RTN) reported a very positive fourth quarter and an optimistic outlook for the year ahead. This has sent the stock up over 2% or about $1.50. It closed Wednesday at $63.43 and was trading near $65.00 per share midday.

RTN was one of my picks for the year Chasing Value: Raytheon in defense of the nation and your portfolio, and my best performer so far. I will be reporting on the Chasing Value: Final list -- 8 stocks for 2008 first month results next week.

Lower pension costs and a tax benefit helped Raytheon post a 64% increase in its fourth-quarter profits [WSJ -subscription required]. Net income rose to $598 million from $365 million in the same quarter a year earlier. Raytheon also said its backlog increased 13%, and it boosted its outlook for 2008 to between $3.65 and $3.80 a share.

I still think that in 2008 the defense sector will outperform the overall market. Raytheon has an above market P/E ratio of about 19, but its price-to-sales ratio of 1.17 is not unreasonable. It also pays a dividend. Although RTN is not generally considered a technology stock in the same breadth as computer and internet companies, I believe it should be and that it offers superior market value to most of them.

Sheldon Liber is the CEO of a small private investment company and the design and research principal for an architecture & planning firm. He doesn't own shares of RTN.

Not much good happened in the stock market today and many Wall Streeters probably wish that "The Fed" would meet early -- like now -- not at the end of the month, and drop interest rates a full point. It is not common for the market to drop when oil prices are down, but the market and oil are reacting to the same thing: weak economic data. If oil prices continue to fall it will relieve some concerns of the Federal Reserve about inflation, allowing them to make a larger move.

Today was an ugly day in the stock market with almost everything ending the day lower. I just finished reviewing five portfolios, plus two watchlists, and my seven picks from last year and Cramer's nine. Out of perhaps 100 stocks only one was up, Raytheon Company (NYSE: RTN). That is not much to brag about one in a hundred. That's downright terrible.

When I selected RTN for 2008 I did not have any idea the title would be so fitting Chasing Value: Raytheon in defense of the nation and your portfolio The defense sector has been strong for eight years running and this year does not look to break that trend. The market has done so poorly that any stock just treading water is looked upon favorably.

In searching out investments for 2008 -- what is likely to be a precarious stock market -- I have been touting the defense industry for the last two months as one of the stories for next year in terms of growth and safety. A press release today noted: "The benchmark SPADE Defense Index (AMEX: DXS) currently has a year-to-date gain of 21.5%, nearly 20% better than the widely followed S&P500 broad-market index."

Certainly this might have been expected in the aftermath of the September 11 tragedy, and given that the U.S remains at war in Iraq and Afghanistan. But this is just one aspect of the industry. Some companies like Boeing Co (NYSE: BA) are doing equally well in the private sector selling new planes and replacement parts for aging fleets.

Raytheon Co (NYSE: RTN) is heavily involved not just with airport security, but develops radar and monitoring systems for airport safety. This is of growing concern as the skies become more congested and airports more impacted.

United Technologies (NYSE: UTX) makes military helicopters that are also used for civilian fleets and fire fighting. UTX also is a world leader in the private sector owning Otis Elevator, Carrier Air Conditioning and more.

It' s not everyday that investors are presented with a growth opportunity, supplemented by more-than-modest downside protection, but that's the case with General Dynamics.

General Dynamics (NYSE: GD) is a diversified manufacturer of corporate jets and heavy vehicles, and is the second largest military shipbuilder -- specializing in nuclear-class submarines.

Along with consistent earnings and dividend growth, analysts like GD's platform diversity, with civilian work (Gulfstream corporate jets) complementing defense contract work (Trident submarines, armored vehicles). Analysts expect GD's revenue to increase about 10-13% in 2007, and 9-11% in 2008.

Moreover, GD's shares offer a measure of safety in that the submarine portion of the U.S. defense system is the force projection most likely to continue to be funded by Congress. Along with stealth fighters/bombers, submarines are the least-detectable form of military operations.

Long term, analysts generally see growth in GD's sales of business jets, land vehicles and munitions. Cost containment has been adequate. The Reuters F2007/F2008 EPS consensus estimates for GD are $5.07/$5.71.

The qualifiers? A reduction in U.S. Department of Defense appropriations would hurt GD's results, as would a failure to deliver existing work on time.

The First Call mean rating for GD is: Buy. [19 firms.] Mean 2008 target: $99.00. [high: $106, low: $94.]

Stock Analysis: General Dynamics is a moderate-risk stock not suitable for low-risk investors. Investors with an investment horizon longer than two years should be rewarded from GD's shares. Sell / Stop Loss if you were to purchase shares in this company: $62.

For L-3 Communications, the defense never rests. L-3 Communications Holdings, Inc. (NYSE: LLL) makes secure and specialized systems for satellite, avionics, and marine communications, with a healthy percentage of its business coming from the U.S. Government.

Analysts like LLL's diversified revenue stream: specialized products (34%), intelligence/communications (22%), government services (25%), and aircraft modernization and maintenance (19%).

Analysts expect 8%-9% organic revenue growth in 2007 and 7%-8% in 2008, including solid growth in government service and specialized products. The Reuters F2007/F2008 EPS consensus estimates for LLL are $5.95 to $6.51.

The risks? Analysts are keeping their eye on LLL's profit margins, high financial leverage, and ability to increase its low dividend. A substantial decline in U.S. government/defense spending would also hurt L-3's results.

The First Call mean rating for LLL is: Hold [15 firms]. Mean 2008 target: $116.20 [high: $129, low: $108].

Stock Analysis: L-3 Communications is a moderate-risk stock not suitable for low-risk investors. Investors with an investment horizon longer than 2 years should be rewarded from LLL's shares. Sell/Stop Loss if you were to purchase shares in this company: $78.