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By Nick Wakeman

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Will defense firms miss the economic comeback?

In an otherwise upbeat column about the economic growth expected over the next decade, Forbes commentator Rick Whittington saves the bad news for last.

He sees the U.S. industrial base, not consumer spending, leading an economic comeback, but he picks six stocks that will suffer. And it should be no surprise, the six biggest defense companies – Alliant TechSystems, General Dynamics, Lockheed Martin, L-3, Northrop Grumman, and Raytheon – are expected to feel the squeeze.

Profit margins are going down and the fiscal pressure the government is under just won’t allow these companies to make as much money as they have over the past 10 years, Whittington writes.

Whittington is focused on the heavy and traditional defense work these companies perform, and he’s right about that part of their business.

But he doesn’t explore how diversified these companies are, particularly in the IT, electronics and professional services areas. He also doesn’t touch on the vast cash reserves these companies are holding, compared to the post-Cold War era.

Will their stocks decline? Probably. But five years from now we’ll see six companies that’ll look very different from today. And they'll probably still have a prominent spot in anyone's portfolio.

Posted by Nick Wakeman on Jul 12, 2011 at 7:23 PM


Reader Comments

Tue, Jul 19, 2011 Michael Lent

Will Defense-focused firms miss the "economic comeback"? Yes, because they are not in the real economy. They do not stimulate demand but rather depend on what the fractious budgeting process serves up. And that has so many nooks and crannies due to little or no competition and the vested interests of certain career personnel, contractors and members of Congress. The business cycle affects these firms little. So an "economic comeback" will affect them little. More likely, the success and speed of withdrawals from our two wars, the level of terrorism concerns (real and imagined), and the ability of realists to shed Soviet-era warfighting strategems will shape their futures.

Fri, Jul 15, 2011 DonO'Neill

When it comes to large-scale software-intensive programs, it is time to move from aspirational slogans to a disruptive game changer to bring the defense industry into line with the needs of the Department of Defense. The government understands what it needs. Yet industry is not hearing the message. It is time to alter this dynamic by addressing the challenges of competition, innovation, and fixed price contracting in shifting from an expectation of compliance to one of leadership.

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