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 We’ve withdrawn from Iraq, and Afghanistan is supposed to be done by the end of 2014.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
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

Morningstar Advisor - June/July 2013