After years of holding second rank to expensive, futuristic programs -- from $300 million fighter jets to robots -- the essentials have been pushed to the forefront by the wars in Iraq and Afghanistan. And that has proved good news for the stocks of companies that replenish the weapons, trucks and helicopters that see frontline action. They are among the best performers this year, analysts say.
The Iraq war may be politically unpopular, but it has been a boon for the defense industry. Last year, the sector soared 27.7 percent, while the Standard & Poor's 500-stock index rose 13.6 percent. So far this year, the industry has gained 26.7 percent, compared with the S&P's 9.5 percent increase. Since 2001, defense stocks that make up the S&P Aerospace & Defense Select Industry Index have climbed 181.7 percent; the broader [overall] market is up 17.6 percent.
See how the rate of increase of the Dow is increasing at Chart of the Day.
In the long term, the defense companies' fate could depend on the ballot box and the war. "I am positive on defense stocks still, but there is cautionary note in background. There could be potential cuts to the budget, particularly if we get a Democratic president and Democratic Congress," said Richard Tortoriello, equity analyst for aerospace and defense at Standard and Poor's.
According to a Gallop poll in mid-July, 77% of Americans think the economy is bad or headed in the wrong direction, contrary to the factual evidence (the stock market recently hit an all-time high and unemployment is a low 4.5% - 132K new jobs added in June). Only 37% approve of Bush's stewardship of the economy [AP]. It shows the power of a left-leaning media which is against the current President.
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