- The Washington Times - Monday, October 1, 2001

Most stocks in the defense industry are up, as shareholders wait for the go-ahead from President Bush for defense companies to step up production in anticipation of a military campaign.

But the defense contractors that exclusively manufacture warplanes and intelligence equipment, like Lockheed Martin Corp., of Bethesda, are going to pull ahead of the pack simply because they have no ties to the beleaguered airline industry, says Paul Nisbet, a defense analyst with JSA Research in Newport, R.I.

One example is Boeing Co., the Seattle defense contractor, which also makes commercial airliners, Mr. Nesbit says.

"Boeing will be hurt on the commercial side of production, but it'd be a lot worse if there weren't the defense side to their business," he says. "We've got $18 billion of airliners that carry 150 single passengers at Boeing that are unwanted, unneeded, and unaffordable."

He says that companies such as Honeywell, Pennsylvania Precision Cast Parts Inc., and Lockheed Martin are "better off" for not being involved at all in the commercial sector of the aerospace industry.

Lockheed Martin's stock, which is doing well, would be doing better if not for its weak telecommunications division, Mr. Nesbit says.

"It has gone up, it'll continue to go up, and it'd probably go up more if they weren't burned by their global telecommunications sector," he says. "The stock gets a high valuation, even if they are losing money in that sector."

Lockheed Martin's stock closed at $38.32 on the New York Stock Exchange the day before the Sept. 11 attacks. When the stock market reopened on Sept. 17, the stock had climbed to $43.95, and has hovered around $43 since. The stock price closed at $43.75 on Friday.

The extra $40 billion that Mr. Bush has allotted for increased defense spending, and recovery and relief efforts in New York City, Pennsylvania, and at the Pentagon will impact all defense contractors, says Jeff Pittsburg, owner of Pittsburg Institutional, a research firm in Long Island, N.Y.

"Because of the missile defense initiative, Lockheed Martin's stock went up," he says. He also says that Boeing's stock may actually fare better than Lockheed's when the government starts to appropriate the funds to the various contractors. But "that's just based on what we think will be used [during the war]," he says.

But James Fetig, spokesman for Lockheed Martin, says that "it's too early to tell what effect the Sept. 11 events will have on us. Prior to that, our priorities were at the same level as they were at the Pentagon."

Mr. Nesbit gives the company a buy rating, saying the company rebounded from the fallout that occurred when the company missed its financial projections two years ago.

"They recovered quite nicely from the horrible performance they were experiencing a couple years ago. They lost control, and had too much diversity, and couldn't make sense of it all."

Mr. Pittsburg says his company has given Lockheed Martin a "hold" rating, though he acknowledges that business has improved since its missed earnings two years ago.

"We originally recommended the stock when it was at $17, but at this point in time, based on current events, we don't know how it'll benefit from the current war we're in, he says." "We're probably in a minority for thinking that."

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