Morningstar Advisor - June/July 2013 - (Page 30)
Sector Rap
Defense Firms Will Stay Aloft
By Basili Alukos
Industry faces short-term challenges, but discipline and strong
balance sheets will get companies through.
Budget cuts and the winding down of wars
in Iraq and Afghanistan have many investors
wary of the defense industry. To find out
whether defense companies can handle these
near-term challenges and whether they
will have long-term consequences for the
industry, I sat down with Neal Dihora, a
Morningstar equity analyst who covers industrials, and Rick Tauber, who is Morningstar’s
director of corporate-bond research. Our
discussion took place April 10.
30 Morningstar Advisor June/July 2013
Basili Alukos: The president released his
budget this month, and there’s been
a lot of talk about the size of the defense
budget. Neal, before we dive in to the sector,
how big is the defense budget?
Neal Dihora: The base defense budget is
around $530 billion. We’ve seen that number
stagnate for about the past three to four
years. That does not include war funding,
which they designate as “overseas contingency
operations.” That’s been running all over
the map. We’ve seen it as high as $187 billion.
This year, we think it’s going to be closer
to $90 billion, or less. We’ve withdrawn from
Iraq, and Afghanistan is supposed to be
done by the end of 2014. We maxed out the
overall defense budget at almost $700 billion in
2010 when we had the surge in Iraq.
Alukos: What about the effects of sequestration and the implications of longer-term
defense spending in light of our government
looking to cut costs?
Table of Contents for the Digital Edition of Morningstar Advisor - June/July 2013
Morningstar Advisor - June/July 2013
Contents
Contributors
Letter From the Editor
Not Your Values
How Do You Use Alternatives for Clients?
Working to Build a Niche
How to Put Buffett’s Investing Philosophy into Practice
Sophisticated Strategies for the Masses
Investments á la Carte
Investment Briefs
The Percentile Trap
Defense Firms Will Stay Aloft
Beware the Lure of Diversification
Using Alternatives in Practice
Managed Futures and Cash Rates
The World Is Getting Grayer
Waiting to Pull Up Anchor
The Price of Managing Volatility
Let’s Get Back to Basics
Our Favorite Mutual Funds
50 Most-Popular Equity ETFs
Undervalued Stocks With Wide Moats
Mutual Fund Urban Myths
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