Harbingers of doom are afflicting the defense industry. Threats are receding and so is federal spending. How can the shares of military suppliers fail to follow? Maybe so, but there are powerful reasons to suspect that defense stocks are still a better investment than shares in most other economic sectors. For starters, defense stocks are counter-cyclical, meaning that they tend to rise when the rest of the market is swooning. If Israel attacks Iran in the Autumn and oil prices spike, you’ll see what I mean. In addition, U.S. defense companies dominate the arms trade both at home and abroad, and they have potent political protections against competition from overseas. The sector has evolved to a highly concentrated structure that provides considerable resilience if demand softens, and investors have plenty of warning before Pentagon spending goes down — which means most of the surprises are on the upside. I have written a commentary for Forbes here.
Find Archived Articles: