Armaments And Investments- Stock in Niche Defense Firms Soars in Wartime

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http://www.washingtonpost.com/wp-dyn/content/article/2007/07/14/AR2007071400005.html?hpid=moreheadlines

Armaments And Investments
Stock in Niche Defense Firms Soars in Wartime

By Renae Merle
Washington Post Staff Writer
Sunday, July 15, 2007; Page F01

Bullets, trucks and armor -- the meat and potatoes of the defense industry -- are back in fashion.

After years of holding second rank to expensive, futuristic programs -- from $300 million fighter jets to robots -- the essentials have been pushed to the forefront by the wars in Iraq and Afghanistan. And that has proved good news for the stocks of companies that replenish the weapons, trucks and helicopters that see frontline action. They are among the best performers this year, analysts say.

The Iraq war may be politically unpopular, but it has been a boon for the defense industry. Last year, the sector soared 27.7 percent, while the Standard & Poor's 500-stock index rose 13.6 percent. So far this year, the industry has gained 26.7 percent, compared with the S&P's 9.5 percent increase. Since 2001, defense stocks that make up the S&P Aerospace & Defense Select Industry Index have climbed 181.7 percent; the broader market is up 17.6 percent.

But it's the niche companies, such as the makers of armored vehicles, that are the top individual gainers this year, according to the Spade Defense Index, which tracks the sector.

"Clearly anything that is still related to the war in Iraq and Afghanistan is the hottest market right now," said Byron Callan, an independent industry analyst.

Among the hottest products is the Marine Corps' newest mine-resistant vehicle. The program for the vehicles -- which cost about $1 million each -- has ballooned over the past few months to a potential $20 billion from $8 billion, lifting prospects for the vehicles' manufacturers. The military is seeking the vehicles because it thinks they can better protect troops from roadside bombs, the biggest threat to service members in Iraq.

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