Defense stocks will move up, but time to sell duds
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Dear Mr. Berko:
If President Obama increases our troop strength in Afghanistan, I’m told that we will win that war just as we did in Iraq. Now, if we win the Afghanistan War, how much worse will our unemployment situation be when all of our troops come home? I have been very lucky because I bought six defense stocks in March 2003 when Bush began his campaign to free Iraq. My investments are in Boeing, Teledyne, General Dynamics, Elbit Systems, Lockheed and Raytheon. I’ve nearly doubled my money in all of them and I’m concerned that if we win in Afghanistan that defense orders for these companies will slow down and that the value of these stocks will go down, too. Please tell me what you think of my stocks.
H.D., Fort Walton Beach, Fla.
Dear H.D.:
Wow, that’s one of the most bizarre reasons to sell a stock that I can imagine. But I believe that five of those defense issues will continue heading higher whether we win that war or not. Congress and the defense industry have had a long-term love affair since Dwight Eisenhower declared, “Beware of the military industrial complex.”
But you need not worry. The United States and our allies will not prevail in Afghanistan. An acquaintance who lost his legs in a Vietnamese prison told me, “If we allow our morals and kindness to inhibit the defense of our society, then we will be destroyed by a merciless society whose morals we consider evil.” This is why we lost in Vietnam, Iraq and Afghanistan. Our boys will not be coming home soon, so don’t worry that they will compete for jobs with others who are looking for work.
However, I would sell Lockheed Martin Corp. (LMT – $77.28) immediately. And if you were following the stock properly, it would have been sold when it first drifted below the magic $100 number in July of this year. I think LMT could drop to the mid-$60s, at which time, I’d repurchase the stock.
Boeing Co. (BA – $52.63) is a huge company with $68 billion in revenues, but its $326 billion backlog suggests that you should add to your position. Elbit Systems Ltd. (ESLT – $60.46), which makes unmanned air vehicles (drones) and intelligence reconnaissance systems, has lots of momentum going for it. The Street believes ESLT has good upside potential. General Dynamics Corp. (GD – $67.52) will have a so-so year in 2009, but 2010 and beyond look very prosperous. I’d increase my position.
Raytheon Co. (RTN – $51.44) has a strong balance sheet and a superb three- to five-year revenue and earnings growth potential. The coming few years look good for RTN. Teledyne Technologies Inc.’s (TDY – $34.90) Electronics & Communications division, its Engineered Systems, its Aerospace Engines division and its Energy & Power Systems are experiencing declining revenues. TDY does not float my boat, so I’d sell the shares.
All in all, it has been difficult to lose money in defense issues. The defense industry is one of the half-dozen lobbies that own Congress lock, stock and barrel. And many retired senators and congressmen owe their conspicuous-consumption retirement and special bank accounts to the defense lobby.
Please address your financial questions to Malcolm Berko, P.O. Box 1416, Boca Raton, Fla. 33429 or e-mail him at malber@adelphia.net. © Copley News Service
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