How Will the Sequester Hit Defense Stocks? Lockheed Martin Corporation (LMT), Northrop Grumman Corporation (NOC)

Northrop Grumman Corporation (NYSE:NOC)

Another defense contractor who issued less-than-happy earnings, NOC saw its net income drop three percent but still beat predictions. Before you get happy, that just shows how low the analyst’s expectations were. Really, the whole sector is in trouble. Northrop Grumman Corporation (NYSE:NOC) stock has trended up this year and the dividend is good. But I think this is one where the uncertainty is damaging the stock value and the actual sequestration could be disastrous. Invest here if you think you want to put some long-term money into a slightly risky play. But don’t bet anything that could get you faster returns elsewhere.

L-3 Communications Holdings, Inc. (NYSE:LLL)

Of all of these, the lesser-known L-3 has probably had the best year. The stock has been up and the dividend is good at about 2.5%. Still, I think it’s another one that could be hammered by the actual sequester. The support services the company provides to other contractors could take a real hit if other defense contractors see their contracts cut. This is another one to avoid until there’s a final decision on the sequester.

So I don’t know. Defense stocks are generally reliable stocks. But the way congress is acting nothing that relies on the federal coffers can be considered reliable anymore. It might be better to make plans to invest but take a wait-and-see. Or, if you feel like making the play, wait for the sequester to occur, watch the stock values drop, and then start buying. These firms will eventually recover from anything congress can do to them. But it might take a few years. Be warned.

Good luck!

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The article How Will the Sequester Hit Defense Stocks? originally appeared on Fool.com and is written by Nate Wooley.

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