6 Stocks That Never Surrender

Finally!

After more than a month of falling increasingly behind the rest of the market, defense stocks found their footing last week and halted the slide. We've recovered just 0.8 percentage points of the loss so far, and there's a long, hard slog ahead of us.

But hey, at least we're finally marching in the right direction, and the majority of our stocks are back in the "green." Let's see how much we closed the gap last week:

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.

Eastward, ho!
When it comes to my Defense Portfolio, and the defense industry in general, last week was a big one for news of high importance that no one paid attention to -- mainly because most of the stories were esoteric, and several will take months or years to play out. Chief among these, I suspect, was Friday's news that India is making progress in its competition to replenish and restore its antiquated air force with 126 new top-o'-the-line fighter planes.

As we described back in July, both Boeing (NYSE:BA) and Lockheed are vying for the $10.4 billion in contracts. U.S. Secretary of State Hillary Clinton did yeoman's work laying the basis for the sale during last month's visit to India. Of course, they'll have to outfly Saab and Dassault, MiG and Eurofighter to win the laurels. But if they succeed, they'll crack the Indian defense market wide open -- and this is a market expected to spend some $30 billion on new weapons programs over the next five years. Wish 'em luck.

Russian bears in sheep's clothing
Speaking of foreign business opportunities -- and Boeing -- the aerospace titan got an offer to bid on another multi-billion plane deal last week. Hoping to jumpstart a new airline from the ashes of several failed ventures, Russia invited both Boeing and Airbus to bid on a project to supply "Rosavia Holdings" with a potential 120 new airliners. It's a deal worth $6 billion or more to the winner, but as I explain here, it's one Boeing should walk away from. (Long story short, the buyer's a poor credit risk, and wants to buy planes on the cheap.)

Northrop exits ...
In other bad-business-idea news, Boeing rival Northrop Grumman (NYSE:NOC) has decided that it no longer wants to sell consulting advice to the U.S. military. Not that it isn't profitable, but fears that the Obama Administration is more concerned about conflicts of interest inherent in defense consulting and is also considering "in-sourcing" more work back within the government have Northrop thinking that now's a good time to exit the field, stage left -- before growth prospects get curtailed.

The good news? Private equity shops lacking such conflicts, able to reap profits unfettered, want in. Various news sources suggest that Blackstone, Carlyle, or KKR are all sniffing around the deal, which could fetch Northrop anywhere from $1 billion to $2 billion.

... and Lockheed enters
Meanwhile, as one door closes for Northrop, another opens for Defense Portfolio stalwart Lockheed Martin. Dipping its toes in the alternative energy field, Lockheed has teamed up with infrastructure construction specialist Black & Veatch to help improve the efficiency and security of the U.S. electric grid (smart grid). Together, the firms are assisting multiple electric utilities partners in applying for grants under the Department of Energy's $4.5 billion Smart Grid Investment Grant Program. No word on how profitable this will be for Lockheed yet, of course, but related developments suggest that this trend has legs.

And now, for something completely different
And finally, the biggest news-you-never-heard last week comes from merrye olde Englande. Over there, the U.K Ministry of Defence is moving ahead with a massive $20 billion plan to outsource military technical training to the private sector. The "Metrix" consortium, led by QinetiQ (a key iRobot competitor in the manufacture of military robots), just won an initial $50 million contract to begin work designing new course materials.

Why should you care? Because within Metrix are such US companies as Raytheon and Hewlett-Packard (NYSE:HPQ). In fact, Raytheon plays a key role in redesigning the training consortium, and just hired 100 staffers for the purpose. As the Financial Times explained: "The US defence contractor is best known for its missiles and electronics, but also has experience in creating interactive computer courses for General Motors and Nasa."

Foolish final thought
What's the upshot of all this for U.S. defense investors? It's that you're not just defense investors -- and not just in the U.S.

Much journalistic ink has been spilled over the new administration's supposed antipathy for defense (justified or not), but the fact remains that most companies in this sector operate in markets both domestic and foreign, military and civilian. They make fighter jets for the Air Force, yes. But they also make them for India, and sell commercial airliners to Russia. Jacks of many trades, they build tanks, UAVs, and rockets for the Pentagon Monday, Wednesday, Friday -- then turn around and teach school in London Tuesday/Thursday, and spend their weekends rewiring the house.

Simply put, there's more to these companies than meets the eye. So don't get discouraged by one month's underperformance. These stocks ain't licked yet.