Ah, Friday. Earlier this week, we here at the Fool were debating the market's apparent irrational exuberance, and wondering when the crash would come. Then, it came. And came again. And again. Today, shell-shocked investors look with longing toward a weekend in which, untraded, our stocks will finally stop losing value. Two days of peace, quiet, and recuperation. Thank goodness.

Huh? What's that? Sugar-crazed children in costumes and face paint, yelling and running amok, then surging back home, arms laden with candy and shoes caked in mud, laying waste the good carpet? Sometimes, life just ain't fair.

Especially if you're a defense investor
There's no sugarcoating the fact -- if the S&P took a tumble this week, then defense shops got shellacked:

Company

Starting Price*

Recent Price

Total Return

General Dynamics (NYSE:GD)

$51.24**

$63.65

24.2%

Raytheon

$41.99**

$45.87

9.2%

Lockheed Martin (NYSE:LMT)

$77.69**

$69.49

(10.6%)

AeroVironment

$29.96

$27.46

(8.4%)

iRobot

$11.49

$13.84

20.4%

Force Protection

$4.57

$4.57

0%

AVERAGE RETURN

 

 

5.8%

S&P Spyder

$87.75**

$106.65

21.5%

DIFFERENCE

 

 

(15.7)

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.

Week over week, the S&P gave up four percentage points' worth of gains as marquee names like Schlumberger (NYSE:SLB) and United States Steel (NYSE:X) lined up and took their turns disappointing the Street. This being the heart of the storm for defense contractor earnings, our Portfolio companies, and their competitors and compatriots, also took their shots -- and several missed badly.

Tanks for the memories
Defense Portfolio standout General Dynamics, for example. Still the strongest performer in our portfolio by far, the company remains a force to be reckoned with in the defense sphere. Every one of its defense segments prospered last quarter -- but none of it was enough to offset a precipitous decline in the civilian business jet business.

Take Textron ... please.
As I argued Thursday, Textron's strong free cash flow and continued progress toward extricating itself from the ruinous Textron Finance business are to be commended. Still, the company's 98% decline in profits does sting.

Likewise with Ceradyne. The ceramic body armor manufacturer achieved its goal of bringing civilian and military orders into balance last quarter. But while this sounds like good news, Ceradyne accomplished the feat primarily by shrinking its defense revenues. Guidance for the year was reduced another 14%, and even those of us hoping a recovery is imminent found little encouragement in management's guidance for next year -- ranging from $0.60 to $1.05.

But it wasn't all bad news for the industry
L-3 Communications (NYSE:LLL) reported modest sales growth and strong cash flow. Asked to provide guidance for the rest of this year, L-3 narrowed the range on expected revenues a bit, upped its guess at earnings per share (based on a lower tax rate), and generally stuck to its guns on previous promises: We're looking at maybe $1.2 billion in cash profits this year. This makes for an enterprise value-to-free cash flow valuation of 10 times -- not sell-the-house-and-mortgage-the-kids cheap, but not bad for a 9% grower. Toss in a tidy 1.9% dividend, and I'd say L-3 looks like about an A-minus stock.

Meanwhile, over at Lockheed Martin, the Air Force just allocated a $474 million contract to fund purchases of four F-22 Raptors. The program for building these birds may be headed for the roost, but we've still haven't built to the capped level of fighters. Small consolation after last week's disappointing earnings report, to be sure. But right about now, we'll take consolation where we can find it, and in whatever size available.

General Electric gets specific
The biggest story of the week, though, has to be the reported progress in General Electric's (NYSE:GE) plans to sell off its security business. According to Bloomberg, GE Security is still expected to fetch $2 billion or thereabouts. But now, the short list for bidders appears to be narrowing down to just one name: United Technologies (NYSE:UTX).

Details on the supposed transaction remain scarceBut, but we do know that GE Security booked $1.8 billion in sales in 2007, and management thinks this will grow to $3 billion by 2011. That makes for about 14% compound growth -- significantly faster than what GE is predicted to achieve as a whole. As such, I'd hope to see GE demand a significant premium to its own valuation of one times sales for the unit -- and if the quoted price tag is correct, it doesn't look to be getting that.

For now, therefore, unless and until the facts change, this looks like a bad deal for GE -- and a good one for United Tech.

That's all for this week. Tune in seven days hence as we leave off the earnings season navel-gazing, and return our focus to "where do we go from here." Fool on!

Fool contributor Rich Smith likes a lot of these stocks so much that he "bought the company" -- Force Protection, Boeing, and AeroVironment, to name a few. AeroVironment and iRobot are Motley Fool Rule Breakers picks. General Dynamics is an Inside Value selection.

Why do we tell you this? Because The Motley Fool has a bulletproof disclosure policy, that's why.