Mr. Arment: We basically break it up between the primes and the suppliers for both defense and commercial sectors, which includes about 25 firms. Several companies have a sales mix of both commercial and military.
TWST: How has the group done from a market point of view over the
last year or so?
Mr. Arment: Not too well. Defense stocks in particular have been
underperforming since last July. A number of momentum investors
surged into the group after the terrorist attacks on 9/11, based
on the government increasing defense and homeland security
spending. With the group's strong performance over several months
following 9/11, investors began to take profits and rotate toward
more economic sensitive sectors. This sector rotation commenced
in July 2002 and really accelerated a few months later in
October, dropping valuations to almost pre-9/11 levels. Momentum
investors were betting that a snapback in the economy was in the
offing. Obviously, we've yet to really see the economy snap back
and therefore the solid fundamentals of defense companies are
looking attractive again.
Tickers included in this excerpt: ANT, ATK, BA, BEAV, CAI, COL, EDO, GD, GR, HXL, KDN, LLL, LMT, NOC, PCP, RTN, UDI
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