6 Stocks That Never Surrender

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Earnings season is upon us, and as usual, the news comes fast and furious -- as profit reports vie with bigger macroeconomic stories for the public's attention.

Freeport-McMoRan (NYSE: FCX) is back. The copper and gold miner reported impressive earnings last week. Like other miners, the company has benefited from increasing commodity prices, which have been spiking on hopes of a global recovery and a declining dollar.

While Congress and armchair pundits debate whether anything should be done about Wall Street's compensation practices, Goldman Sachs (NYSE: GS) is still raking it in -- but for how long, as the White Houses ponders the problem of banks and companies gone too big to fail?

Moving from a broader picture of the economy into defense investing in particular, last week offered all the news you can eat, and more. And guess what? We're moving back up!

Company	Starting Price*	Recent Price	Total Return
General Dynamics (NYSE: GD)	$51.24**	$67.75	32.2%
Raytheon (NYSE: RTN)	$41.99**	$46.82	11.5%
Lockheed Martin (NYSE: LMT)	$77.69**	$71.58	(7.9%)
AeroVironment	$29.96	$29.62	(1.1%)
iRobot (Nasdaq: IRBT)	$11.49	$13.65	18.8%
Force Protection	$4.57	$5.48	19.9%
AVERAGE RETURN			12.2%
S&P Spyder	$87.75	$109.33	24.6%
DIFFERENCE			(12.4)

Source: Yahoo! Finance.
*Tracking began on July 10, 2009. Portfolio is equal-weighted, with "recent price" being set at market close on the Thursday preceding publication, and adjusted for stock splits and dividends.
**Adjusted for dividends.

Ack-ack over D.C.
Granted, the winnings were evenly distributed. Starting at the back of the pack, Lockheed Martin ran into thick triple-A fire over Washington last week. Dogged by spending cuts at the Pentagon, the company warned of weaker revenue in the year to come. And despite the market's remarkable comeback in recent months, Lockheed warned that its flagging pension fund requires cash infusions totaling $2.4 billion over the next few quarters. That's gonna hurt profits, and it's already hurt the stock.

Incidentally, it also threatens one of the key premises that convinced me to place Lockheed in this "virtual portfolio" in the first place: strong cash flow. As the quarters progress, and we get a clearer picture of just how much cash this business can churn out, we'll have to reevaluate whether Lockheed deserves to stay here.

Boeing finds its wallet
Speaking of cash, did I mention that Boeing (NYSE: BA) made some? America's biggest airplane maker announced that through the end of the third quarter, it has now generated some $1.4 billion in free cash flow year to date. Next quarter looks to be more turbulent on that front, however, as operating cash flow dwindles and capital spending continues apace. My conclusion: Don't board just yet.

Raytheon's laser focus
In contrast, another of our Defense Portfolio stalwarts just keeps getting better and better. Raytheon posted 6% higher sales in Q3, and grew its earnings per share four times as much. The missile-maker reported generating $1.5 billion in free cash flow over the last nine months, and while that would suggest $2 billion in free cash flow as a general "run-rate," management thinks it can do even better than that. Projecting $2.2 billion to $2.4 billion in cash from operations, but with capex trending toward a mere $250 million for the year, $2 billion now looks like a lowball estimate. This company could conceivably generate as much as $2.2 billion in cash profits.

iProfit
Further good news trundled our way atop a slow-moving Roomba. iRobot reported that while its U.S. sales of home robots are on the blink, international sales zoomed 55% -- and prospects for additional sales of PackBot bomb-disassemblers are going strong. This rebound in the robot biz now has iRobot stock now claiming third place in our portfolio, performancewise.

Elsewhere in the defense sphere...
In other news, there is no news. General Dynamics reports its Q3 numbers next week. Analysts are looking for a 13% sequential drop in profits -- but General D has a history of beating such expectations. Force Protection will keep us waiting until early November for its report. And AeroVironment? That bird's wings beat to a different drummer entirely. Holding itself aloof from the defense pack, AV declines to join in the earnings rush typical for this sector. But keep your eye sharp on December, when AV will circle round again.

As for me, I'll be back with a report on the defense sector's last few earnings reports later this week. Stay tuned.