Shares of the country’s leading defense companies have been fairly weak in recent weeks as worries of budget cuts in the U.S. defense budget have surfaced. It’s true that the Pentagon has actually asked the government to not fund certain projects that it deems unneeded. However, not all defense companies will see a reduction in spending growth.
Most of the cuts will likely center around missile defense systems and certain models of fighter jets. Other areas of the defense sector, such as homeland security, intelligence, and surveillance equipment based on new technologies, should continue to thrive.
One of the leaders in this area is L3 Communications (LLL). Along with the rest of the sector, LLL shares have dropped in recent months, and now trade under $74 per share, about $11 below their 52-week high.
L3 is trading at a market multiple of 15 times earnings, despite above-average growth for the defense industry. CEO Frank Lanza continues to make small, strategic acquisitions to fill out the company’s new product offerings, and the L3’s solid performance should be able to weather any small cuts in less important areas of the U.S. defense budget.