Defense Shares Likely to Fare Well in 2012, But Then What? (From Forbes)

This year is shaping up to be the fourth in a row when defense stocks will perform better than anyone would have expected, given news of receding threats and another trillion-dollar federal budget deficit. Although Democratic administrations haven’t been noted for their strong support of weapons programs — at least, not since the Vietnam War — President Obama has funded robust military budgets during each year of his tenure. It appears 2012 will be no exception, despite the fact that U.S. forces are out of Iraq, Al Qaeda is on the ropes, and the Budget Control Act signed into law in August mandates hundreds of billions of dollars in defense cuts over the next ten years. With November elections looking unlikely to do further damage to defense-industry prospects, the big question is what happens to the second wave of spending cuts that the budget act requires to begin in 2013. Investors may not have much visibility on that front until the end of the year, so for now they will have to be content with the fact that the sector has largely dodged the bullet for another year. I have written a commentary for Forbes here.