Taking Stock by Malcolm Berko

Dear Mr. Berko: If President Obama increases our troop strength in Afghanistan, I'm told that we will win that war just as we did in Iraq. Now, if we win the Afghanistan War, what will the unemployment situation looks like (how much worse will it be) when all of our troops come home? When we finished Iraq, we sent most of our men to Afghanistan so the soldiers did not have to return to compete in the workforce. This really concerns me because we have such high unemployment in the country. And in my state (Florida), it's over 10.5 percent. I have been very lucky because I bought six defense stocks in March 2003 when Bush began his campaign to free Iraq. My investments are in Boeing, Teledyne, General Dynamics, Elbit Systems, Lockheed and Raytheon. I've nearly doubled my money in all of them and I'm concerned that if we win in Afghanistan that defense orders for these companies will slow down and that the value of these stocks will go down, too. Please tell me what you think of my stocks. Please tell me if I should sell. H.D., Fort Walton Beach, Fla.

Dear H.D.: Wow, that's one of the most bizarre reasons to sell a stock that I can imagine. But I believe that five of those defense issues will continue heading higher whether we win that war or not. Congress and the defense industry have had a long-term love affair since Dwight Eisenhower declared, "Beware of the military industrial complex." But pretty soon, the next president may warn us, "Beware of the health care industrial complex."

But you need not worry. The U.S. and our allies will not prevail in Afghanistan. An acquaintance who lost his legs in a Vietnamese prison told me, "If we allow our morals and kindness to inhibit the defense of our society, then we will be destroyed by a merciless society whose morals we consider evil." He was a little more graphic in his comments, but I think my paraphrasing equably expresses his thoughts. This is why we lost in Vietnam, Iraq and Afghanistan. Our boys will not be coming home soon so don't worry that they will compete for jobs with others who are looking for work.

However, I would sell Lockheed Martin (LMT -- $80.10) immediately. And if you were following the stock properly, it would have been sold when it first drifted below the magic $100 number in July of this year. I think LMT could drop to the mid $60s, at which time, I'd repurchase the stock. Boeing (BA -- $52.61) is a huge company with $68 billion in revenues, but its $326 billion backlog suggests that you should add to your position. Elbit Systems (ESLT -- $62.81), which makes unmanned air vehicles (drones) and intelligence reconnaissance systems, has lots of momentum going for it. The Street believes ESLT has good upside potential. General Dynamics (GD -- $67.80) will have a so-so year in 2009, but 2010 and beyond look very prosperous. I'd increase my position. Raytheon (RTN -- $48.81) has a strong balance sheet and a superb three-to-five-year revenue and earnings growth potential. The coming few years look good for RTN. Teledyne's (TDY -- $36.66) Electronics & Communications division, its Engineered Systems, its Aerospace Engines division and its Energy & Power Systems are experiencing declining revenues. TDY does not float my boat so I'd sell the shares.

All in all, it has been difficult to lose money in defense issues. The defense industry is one of the half-dozen lobbies that own Congress lock stock and barrel, playing those baby-kissers like puppets on knee and string. And many retired senators and congressmen owe their conspicuous consumption retirement and special bank accounts to the defense lobby. 

Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775 or e-mail him at mjberko@yahoo.com. To find out more about Malcolm Berko and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at www.creators.com.

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