There is a lot of uncertainty regarding the future of the defense industry under the Obama Administration and Defense Secretary Robert Gates. Proposed efficiency initiatives call for a realignment of defense spending indicating only modest growth in the defense budget of 1% to 2% over the next few years. “Learning to do more without more” is the battle cry of the current administration. The stock market does not like uncertainty, therefore, many leading defense stocks have come under a lot of selling pressure driving valuations to low levels not seen in years. However, not every company in the defense industry is on sale today.
There exists a lot of controversy and contradictory views regarding how much we should spend on defense. On the other hand, it is hard to argue with the unfortunate reality of a world where wars are being waged and terrorism proliferates. Questions about efficiency are different than those about necessity. A strong defense is an undeniable necessity in today’s world. Therefore, our country and the rest of the world needs a strong and vibrant defense industry in order to protect world freedom and, ironically, maintain peace. Consequently, there is little doubt regarding the future existence of companies operating in the defense industry, only the future growth rate is in question.
Source: GuruFocus
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