January 12, 2007: Don't sell 'em short

Media and political agendas have the latest War on Terror strategy being guffawed as wrong, wrong, wrong.

Here is what is being missed. Military contracts have been indicating that less boots on the ground is coming sooner rather than later, despite the heralded (or discredited) surge of troops.Special forces and the USAF and Navy will be operating under less stringent rules of engagement in more places. Basically, they will be using the same set of rules (none) as the enemy to track down and kill those seeking to do us harm. With the smart tech and stealth technology now ramped up in a variety of new weapons systems, the surge buys time as our technological weaponry is placed in appropriate sites. A salient warning was issued by the President when he specifically stated that the US will track down and destroy terrorists AND THEIR SUPPLIERS. Unless Congress pulls the plug (unlikely, except to grandstand to their far left base)a more violent but less troop intensive conflict is forthcoming.Bottom line, Bush may pull this one off, and troops who have been there strongly agree.Don't sell 'em short.

This change of contracts will hurt those companies that are doing a brisk business in body armor and ground based traditional infantry weapons and vehicles, except heavy trucks, which are long overdue for replacement (good for Oshkosh -OSK).

I would be an aggressive buyer of stocks that are Navy and Air Force oriented. For brevity, look at my previous posts on this subject (Aero Defense). More will be forthcoming on this topic.

Regarding companies that will benefit from the infrastructure improvements once Iraqi security improves, Halliburton (HAL) is my choice. This company some love to hate is simply the best at what it does. And it does many,many things.

I do not think that any ETF is a wise choice for this new phase of the war. Rather, a very stringent criteria based upon guaranteed contracts is imperative for stock selection. And supporting companies that support our national defense has a patriotic flavor, so feel good about stocks that make our military more effective.

A reader inquired about General Dynamics (GD) recently and I commented that it may be fully priced. Based upon very large recent contract awards and future earnings from advanced weapon systems now approved for mass production, I would now by a buyer of GD stock.

To our friends still holding oil stocks....have a nice day, and don't sell 'em short.