According to an article on Bloomberg, "European defense contractors have sought work and acquisitions in the U.S., where military spending has grown faster than in their home markets. BAE Systems Plc, Europe's largest weapons maker, bought Jacksonville, Florida-based Armor Holdings Inc., the biggest maker of armor for Humvee transports, last year for more than $4.1 billion."

Now an Italian firm is bidding $5.2 billion for DRS Technologies (NYSE: DRS). According to the same article in Bloomberg, the acquiring firm, Finmeccanica, makes carbon-fiber frames for Boeing Co. (NYSE: BA)'s 300-seat 787 Dreamliner, and its AgustaWestland helicopter division has a supply contract with Lockheed Martin Corp. (NYSE: LMT) for the U.S. presidential fleet. DRS makes flight recorders, sensors and thermal-imaging devices that are used on U.S. military helicopters and ships.

Finmeccanica is partly owned by the Italian government. An acquisition like this rounds out the Italian defense supplier's product-line and positions it well to penetrate U.S. military spending. Much of the premium paid by the Italians has been realized already as the venerable Wall Street Journal reported of the possible deal last week.

Zack Miller is the managing editor of IsraelNewsletter.com and a former equity analyst for a leading multinational hedge fund.

Defense contractor Lockheed Martin (NYSE: LMT) posted strong earnings this morning for its first quarter of $1.75 per share, well ahead of the $1.63 analysts had been expecting.

Looking at the quarter's revenue figures, we see a nice year-over-year jump, climbing to $9.98 billion from $9.28 billion. In addition, the company lifted its full-year earnings forecast by 10 cents to $7.15 to $7.35 per share.

The company had good earnings, and lifted full year estimates, so why is the stock falling in today's action? It could be in reaction to the fact that the company's biggest division, its jet business, showed a drop in sales in the period. During the quarter, this business fell since Lockheed is in the middle of a transition from its older fighter jets to newer models such as the F-35 and F-22.

The news today the Israeli defense company Elbit Systems (NASDAQ: ESLT) signed a $40 million deal with the Royal Netherlands Army (RNLA) is not just the latest in a string of new deals for Elbit, but could help the company penetrate the NATO countries as well.

Elbit Systems will supply systems to the RNLA's ground forces that will include enhanced tactical computers (ETCs), incorporating tactical communication devices, and data communication software. The systems will be installed in more then 1,800 of the RNLA's vehicles, including tanks, armoured vehicles, and others. The project involves extensive cooperation with the Netherlands MoD's C2 Support Centre.

Commenting on the deal, Bezhalel Machlis, Corporate VP & General Manager Land Systems & C4I Division, Elbit Systems said: "Winning the tender to supply Battlefield Management Systems to the Netherlands MoD constitutes another step in establishing our position as leader in the C4I fast growing and developing market. Elbit Systems' BMS systems are in use today by over 20 militaries worldwide and we view this contract awarded by the Netherlands MoD, a leading country in NATO, as a springboard to potential future business in this market."

Elbit has been signing deals all over the place, but if they can crack NATO member countries defense budgets, this stock will soar higher.

Aaron Katsman is the lead Portfolio Manager and Managing Director of America Israel Investment Associates, LLC. and Senior Editor of IsraelNewsletter.com. DISCLOSURE: Writer has a position and is long ESLT. He has no positions in any other stock mentioned as of 1/27/08

In the midst of all the bad news it's hard to imagine the stock market ending the year higher than it started. However, that is entirely possible and probably much better than a 50/50 bet. If you want to play it safe consider buying into an index fund or exchange traded funds (ETFs) instead of banking on individual stocks.

For broad coverage you cannot beat the Vanguard Total Stock Market or the Total International Stock funds with the lowest fees and longest history in this area. I think it has also been generally accepted investing strategy over the last few decades that in bearish markets there is a run to quality and "guns and butter" stocks. If you were to follow this old adage you would be considering three sectors, healthcare, defense and consumer staples.

Mutual funds and ETFs (with less history) are less volatile and offer greater diversification than most investors could achieve, and at much lower cost. If you dollar cost average over the next few months you should also be able to smooth out some bumps in the current market.

When the political machine goes to work to juice the economy the market has most often responded positively. That does not mean it's smart for the country, but since when is a politicians first thought about the country.

The Israeli company Commtouch (NASDAQ: CTCH), a leading provider of email defense systems, announced today that all proposals presented to shareholders on its proxy statement for the annual meeting of shareholders held on December 14, 2007 were overwhelmingly approved, including the reverse stock split (by over 92% of the voting shares).

I guess the question is whether this is good, bad, or insignificant news? While in some cases reverse splits signal that a company is at the end of the line, in Commtouch's case that is not the case. The company continues to execute its business model well, and as more and more defense is needed to stop spammers, Commtouch should continue to grow. The company made this move in order to reduce the number of shares, as well as get the share price up over $5, where it would be open to more institutional interest.

It seems that this is a positive move and the fact that over 90% of the votes were in favor is a good sign. But what's really important is that it continues to sign deals and execute. If it does that, the stock will take care of itself.

Aaron Katsman is the lead Portfolio Manager and Managing Director of America Israel Investment Associates, LLC. and Senior Editor of IsraelNewsletter.com. Disclosure: Writer owns stock and is long CTCH. He has no position in any stock mentioned as of 12/13707.

With former Miami Dolphins coach Don Shula, re-visiting the New England Patriots spying scandal and bringing up the issue whether an asterisk should be added if they successfully run the table and go undefeated, I found it interesting that a very successful Israeli defense company's subsidiary was also found guilty of espionage.The Patriots were guilty of spying against the NY Jets and having seen the Jets play, I can't imagine that the spying made any difference whatsoever. The same can't be said of Elbit Systems (NASDAQ: ESLT) subsidiary Kollsman Inc.

Kollsman Inc., was found guilty of misappropriation of trade secrets relating to commercial air data computers. The jury ruled in favor of the plaintiff Innovative Solutions & Support Inc. (NASDAQ: ISSC) and found that IS&S had suffered damages of just over $4.4 million in lost profits and $1.6 million in defendants' net profits, for a total of over $6 million. The verdict also opens up the possibility of imposition of exemplary damages and other costs against the defendants based on willful conduct.

"Analogous actions by the Soviet Union, when it deployed missiles in Cuba, prompted the 'Caribbean crisis,'" Russian President Vladimir Putin said Friday, using the Russian term for the Cuban Missile Crisis, in reference to the United States' Europe-based missile defense plan.

Putin's statement that U.S. plans to put a Europe missile defense system in Poland and the Czech Republic can perhaps be best interpreted as a rhetorical overstatement before Putin negotiates new economic and political agreements with the West, particularly with Europe.

Russia's oil and natural gas resources, foreign currency reserves, commercial development and +5% annual GDP growth rate have enhanced the nation's negotiating stance, on both economic and geostrategic issues. Sensing his stronger hand, Putin has used the increased leverage to propose, among other measures, European economic/commercial agreements that would be more favorable to Russia, while also making clear that international political agreements among the U.S., Europe and Russia on such issues as the Iraq War, Iran nuclear technology -- and a potential European missile shield -- would also reflect Russia's concerns.

Lockheed Martin Corporation (NYSE: LMT) shares are trading higher today after competitors Northrop Grumman (NYSE: NOC) and General Dynamics (NYSE: GD) both posted positive earnings reports today, in the wake of LMT's positive release yesterday. Additionally, Lockheed announced today that the company was awarded a $52.5 million contract to provide next generation convoy trainers to the US Marines. If you think that the company won't fall by too much in the coming months, then now could be a good time to look at a bullish hedged trade on LMT.

Lockheed stock has shot up over the past three months, hitting a one-year high of $113.74 earlier this month. LMT opened this morning at $106.16. So far today the stock has hit a low of $106.15 and a high of $108.90. As of 11:05, LMT is trading at $108.70, up $1.73 (1.6%). The chart for LMT looks bullish and steady, while S&P gives the stock a positive 4 STARS (out of 5) buy rating.

For a bullish hedged play on this stock, I would consider a January bull-put credit spread below the $90 range. A bull-put credit spread is an options position that combines the purchase and sale of put options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make an 8.7% return in just 3 months as long as LMT is above $90 at January expiration. Lockheed would have to fall by more than 17% before we would start to lose money.

Let me introduce my Yankee Doodle Dandy portfolio, a compilation of red, white and blue stocks for investors to consider as they celebrate our nation's independence.

Regardless of your views on the Iraq war, there's no denying that defense stocks including Lockheed Martin Corp. (NYSE: LMT), Northrop Grumman Co. (NYSE: NOC), Raytheon Co. (NYSE: RTN) and General Dynamics Corp. (NYSE: GD) are reasonably valued. This is especially noteworthy considering that defense spending will need to be maintained at pretty high levels for years to come in order to replace equipment that's been worn out from combat. President Bush is proposing to spend a record $439 billion in fiscal 2007 on defense and another $42.7 billion on homeland security.

Lockheed, the maker of the F-16, seems especially cheap, trading at a forward multiple of 14.6. Its shares have only gained 4.6% this year even though the company reported better-than-expected first-quarter results and raised earnings guidance. Missile and defense electronics company Raytheon, up less than 3%, is in the same situation.

Investors often overlook the huge businesses that Lockheed and Raytheon have in areas outside of defense, including computer systems and air-traffic control. The managements of both companies also have vastly improved over the past few years. Northrop and General Dynamics have always been pretty well run.

Boeing Co. (NYSE:BA), notably the second-largest defense contractor, also looks worth snapping up. Its stock is up less than 3% this year, which is surprising considering how well it's rebounded against European rival Airbus. The company trades at a forward multiple of 17.7.

Don't confuse cheap stocks with bargains.

Remember that shares may be inexpensive for a good reason -- for instance, because the company is going down the drain. Savvy investors know that things are rarely as awesome or horrendous as the market sentiment may indicate, of course. There is a point when every single shred of potential bad news is factored into a stock price on even the most unlucky of companies.

Remember, things can always get worse before they get better. With that in mind, here's a review of some stocks that my colleagues and I think have values that are compelling.

Names that I've liked include Home Depot Inc. (NYSE:HD) and, for the truly adventurous, Ford Motor Co. (NYSE:F). My colleagues have singled out General Electric Co. (NYSE:GE), Dell Inc. (NASDAQ:DELL), Caterpillar Inc. (NYSE:CAT) and Halliburton Co. (NYSE:HAL) for your consideration.

Let me add a few others.

American International Group Inc. (NYSE:AIG) reported results Thursday that missed analysts' forecasts because of one-time charges and announced a $5 billion buyback. The stock climbed a mere 3 percent on the news. It will probably climb higher. Wall Street analysts expect it to hit $79.63, about $10 above where it's currently trading.

Other insurance stocks including Allstate Corp. (NYSE:ALL) and Ace Ltd. (NYSE:ACE) also look cheap. Allstate is trading at a forward price-to-earnings multiple of about 9. Ace is about 8, while AIG's is 11.

Lockheed Martin Corp. (NYSE:LMT) and Northrop Grumman Corp. (NYSE:NOC) today posted solid fourth quarter results today, helped by the huge increases in defense spending from the War in Iraq and Afghanistan. Both companies also raised their earnings guidance.

Lockheed's profit was $729 million, or $1.68 per share, versus $568 million, or $1.29 a year earlier, the Bethesda, Maryland-based company said in its earnings release. Sales rose 6 percent to $10.84 billion. Analysts had been expecting profit of $1.46 and sales of $10.77 billion, Thomson Financial said.

The company raised its profit forecast for the year to $5.80 to $6 per share, from its previous guidance in October to reflect improved performance in its aeronautics business. Revenue is seen at $40.25 billion to $41.25 billion. Analysts had expected profit of $5.87 on revenue of $41.6 billion.

``We've had very consistent program performance and execution,'' Lockheed CFO Christopher Kubasik told Bloomberg News. ``One thing we're striving for is perfect execution on all 3,000 of our programs. When you meet your deadlines and deliver products and services on time and on budget, you see the contribution to the bottom line.''

Northrop's profit rose to $453 million, or $1.28 per share, compared with $331 million, or 92 cents, the Los Angeles-based company said. Revenue jumped to $8.02 billion from $7.67 billion. Profit from continuing operations was $1.29, beating Wall Street expectations for profit of $1.26, according to Thomson Financial.

The company's guidance for 2007 was $4.80 to $5.05 per share on sales of $31 billion to $32 billion. Analysts had expected profit of $4.85 on sales of $31.8 billion.