"Investors should be well rewarded in the coming years by buying with major U.S. defense companies at current prices," says Gregory Dorsey.

The contributing editor to Stephen Leeb's Income Performance Letter explains, "The U.S. has more than doubled our sales of armaments to foreign nations over the past three years. And regardless of who wins the election, we expect this to continue."

"We're adding one for growth and income to our portfolio now. Lockheed Martin (NYSE: LMT) is a premier defense contractor. It's best known for its fighter jets.

"For example, Lockheed is now developing the F-35, also known as the Joint Strike Fighter, the replacement for the current generation of front-line fighters.

"But the company is actually engaged in four broad business areas, each of which should enjoy strong growth for years to come.

MOST NOTEWORTHY: Today's noteworthy upgrades included Lockheed Martin (LMT), Raytheon (RTN), Hartford Financial (HIG), Seagate Technology (STX) and CommScope (CTV):

• JP Morgan upgraded two defense stocks today: Lockheed Martin (NYSE: LMT) was upgraded to Neutral from Underweight on valuation;

• Raytheon (NYSE: RTN) was raised to Overweight from Neutral, with expectations for the company to post above average organic growth driven by strong bookings. The firm also raised Raytheon's 2008 EPS estimate to $3.80 from $3.60, well above the consensus estimate.

• AG Edwards believes Hartford Financial's (NYSE: HIG) recent weakness has created a buying opportunity and upgraded shares to Buy from Hold.

• Seagate (NYSE: STX) was upgraded to Buy from Hold at Brean Murray as checks indicate a healthy seasonal uptick in demand for drives and PCs in 2H07.

• CommScope (NYSE: CTV) was Upgraded to Outperform from Market Perform at Morgan Keegan based on higher 2007 and 2008 expectations along with accretion from the Andrew acquisition...

OTHER UPGRADES:

• BMC Software (NYSE: BMC) was upgraded to Neutral from Underperform at Credit Suisse.

• Friedman Billings raised Kimco Realty (NYSE: KIM) to Outperform from Market Perform.

• Merck (NYSE: MRK) was upgraded to Buy from Hold at AG Edwards.

• Int'l Speedway (NASDAQ: ISCA) was upgraded to Buy from Hold at Matrix USA.

• JP Morgan added Cognizant Technology Solutions (NASDAQ: CTSH) to its JP Morgan Focus List.

Analyst summaries provided by TheFlyOnTheWall.com (subscription required).

MOST NOTEWORTHY: GlaxoSmithKline plc (GSK), SanDisk Corp (SNDK), Lockheed Martin Corp (LMT) and aQuantive, Inc (AQNT) were today's noteworthy downgrades:

• Deutsche Bank and ABN Amro cut GlaxoSmithKline (NYSE: GSK) to Hold from Buy following the New England Journal of Medicine warnings from Avandia.

• Merrill Lynch cut SanDisk (NASDAQ: SNDK) to Neutral from Buy due to concerns that oversupply in the industry will extend through next quarter.

• Cowen downgraded shares of Lockheed Martin (NYSE: LMT) to Neutral from Outperform based on slower 2007-2008 EPS growth and less cash redeployment upside than General Dynamics Corp (GD) and Raytheon Co (RTN).

• UBS downgraded aQuantive (NASDAQ: AQNT) to Neutral from Buy and RBC Capital cut shares to Sector Perform from Outperform after the Microsoft (MSFT) acquisition...

OTHER DOWNGRADES:

• Piper Jaffray downgraded Cytyc Corp (NASDAQ: CYTC) To Market Perform from Outperform.

• NetBank, Inc (NASDAQ: NTBK) was downgraded to Underperform from Market Perform at Friedman Billings.

• Merrill Lynch downgraded shares of Aeropostale, Inc (NYSE: ARO) to Neutral from Buy.

• AG Edwards downgraded BHP Billiton Ltd (NYSE: BHP) to Hold from Buy.

• Gabelli downgraded shares of Alltel Corp (NYSE: AT) to Hold from Buy.

Analyst summaries provided by TheFlyOnTheWall.com (subscription required).

MOST NOTEWORTHY: Lockheed Martin (LMT), CastlePoint Holdings, Ltd (CPHL) and OraSure Technologies, Inc (OSUR) were today's notable upgrades:

• Matrix USA started Lockheed Martin (NYSE: LMT) with a Strong Buy rating, believing steady demand from defense spending and communications systems is allowing the company to continue to build impressive fundamental trends.

• Piper believes CastlePoint'sHoldings Ltd (NASDAQ: CPHL) relationship with Tower Group allows it immediate access to a high quality book of business, strong relationships in the industry and the ability to efficiently place capital overnight. Piper Jaffray stated shares of CastlePoint with an Outperform rating and a $20 target.

• Lazard started Orasure Technologies Inc (NASDAQ: OSUR) with a Buy rating and $12 target based on new production launches and new CDC HIV testing guidelines...

OTHER INITIATIONS:

• UBS started Grant Prideco, Inc (NYSE: GRP) with a Neutral rating.

• Banc of America started Bon-Ton Stores, Inc (NASDAQ: BONT) with a Buy rating and $64 target.

• Roth Capital transferred coverage of Web.com, Inc (NASDAQ: WWWW) with a Buy rating and $8 target.

• City National Corp (NYSE: CYN) was started with a Hold rating at AG Edwards.

Analyst summaries provided by TheFlyOnTheWall.com (subscription required).

MOST NOTEWORTHY: Some of today's noteworthy downgrades were Medimmune Inc (MEDI), J.B. Hunt (JBHT), Lockheed Martin (LMT), Komag (KOMG) and Victor Corp (VICR):

• Freidman Billings cut Medimmune inc (NASDAQ: MEDI) to Market Perform from Outperform on valuation. Prudential downgraded shares to Neutral from Overweight and recommended investors take profits in the company.
• J.B. Hunt Transport Services Inc (NASDAQ: JBHT) was downgraded to Peer Perform from Outperform at Bear Stearns citing valuation.
• Lockheed Martin (NYSE: LMT) was removed from Goldman Sachs Conviction Buy List and prefers L-3 Communication (LLL) over the large-cap aerospace/defense company.
• Komag Inc (NASDAQ: KOMG) was downgraded to Sell from Neutral at American Technology as they believe industry fundamentals have weakened and that the Seagate (STX) preannouncement will increase pricing pressure.

OTHER DOWNGRADES:

• Stifel downgraded Mercantile Bank (NASDAQ: MBWM) to Hold from Buy at Stifel.
• Soliel downgraded shares of Limited Brands (NYSE: LTD) to Hold from Buy.
• Matrix USA cut DSP Group (NASDAQ: DSPG) to Strong Sell from Hold.
• Brean Murray downgraded shares of Keithley Instruments (NYSE: KEI) to Sell from Buy with a $13 target following the company's Q2 pre-announcement.
• Needham cut Semitool Inc (NASDAQ: SMTL) to Hold from Buy.

Analyst summaries provided by TheFlyOnTheWall.com (subscription required).

MOST NOTEWORTHY: Lockheed Martin Corp (LMT), Harrah's Entertainment Inc (HET) and Avaya Inc (AV) were some of today's most notable downgrades:

• JP Morgan downgraded Lockheed Martin Corp (NYSE: LMT) to Underweight from Neutral, citing Lockheed's outperformance as well as expectations for a more challenging environment for defense stocks.

• Harrah's Entertainment (NYSE: HET) was downgraded to Neutral from Add at Calyon based on the expected buyout.

• Thomas Weisel downgraded Avaya Inc (NYSE: AV) to Underweight from Market Weight based on increased concerns that shares are not sufficiently discounting transition risks associated with AV's strategic shift from telephony hardware to software and applications, driven by the shift towards VoIP from TDM technology.

OTHER DOWNGRADES:

• JP Morgan removed Dover Corp (NYSE: DOV) from its Focus List.

• Baird downgraded PRA International (NASDAQ: PRAI) to Underperform from Neutral following a disappointing Q4 report.

• Syniverse Holdings Inc (NYSE: SVR) was downgraded to Market Perform from Outperform at Raymond James and Avondale Partners; Kaufman Bros cut Syniverse to Hold from Buy, while Bear Stearns downgraded Syniverse to Underperform from Peer Perform.

• Roth Capital downgraded Shuffle Master (NASDAQ: SHFL) to Hold from Buy.

• Lazard cut Overseas Shipholding Group (NYSE: OSG) to Hold from Buy.

Analyst summaries provided by TheFlyOnTheWall.com (subscription required).

MOST NOTEWORTHY: Lockheed Martin Corp (LMT) and Nokia Corp (NOK) were today's most notable upgrades:

• Freidman Billings upgraded shares of Lockheed Martin Corp (NYSE: LMT) to Outperform from Market Perform, with a $110 target, citing a strong Q4 report and improving outlook.

• Nokia Corp (NYSE: NOK) was upgraded to Buy from Hold at Deutsche Bank, as they believe the company's positive drivers have accrued faster than expected, including a product refresh and a compelling valuation.

OTHER UPGRADES:

• Friedman Billings upgraded shares of Imclone Systems Inc (NASDAQ: IMCL) to Market Perform from Underperform based on valuation and catalysts expected over the next 12 months.

• Lehman Brothers upgraded shares of FirstEnergy Corp (NYSE: FE) to Overweight from Equal-Weight. They feel the regulatory overhang has been removed with the recent reasonable outcome on rates in Pennsylvania and an improved outlook in Ohio.

• UBS upgraded STMicroelectronics NV (NYSE: STM) to Buy from Reduce as they expect growth from higher sales, a separation in its flash-memory unit, and a decline in inventories at Nokia (NOK), a client. Additionally, the firm raised its global phone handset unit estimate.

Analyst summaries provided by TheFlyOnTheWall.com (subscription required).

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.

Each year Steven Halpern, editor of TheStockAdvisors.com, surveys the leading financial newsletter advisors asking for their favorite stocks for the coming year. This article is part of his 24th annual Top Picks Report.

Lockheed Martin (NYSE: LMT), the world's largest military weapons manufacturer, is the favorite conservative stock of Rich Moroney, editor of Dow Theory Forecasts. The advisor notes,"Lockheed generates about 80% of sales to the U.S. government. Lockheed is the prime contractor for the F-35 Joint Strike Fighter, a large and well-funded defense program -- and one of the company's most significant development projects.

"Lockheed has been working to diversify its defense and intelligence work, as well as non-defense government work. Its information-systems and technology-services businesses have been growing nicely, as the government is increasingly outsourcing.

"In August, Lockheed was chosen as the prime contractor for NASA's successor to the space shuttle -- an award with an initial contract value of $4.2 billion.

"At 16 times estimated year-ahead earnings of $5.55 per share, the stock trades at a discount to its five-year average forward P/E of 17 and its peer-group average of 21. Lockheed is a Focus List Buy and a Long-Term Buy."

To see Rich's favorite speculative idea for 2007, click here.