"Yesterday, December 7, 1941 -- a date which will live in infamy -- the United States of America was suddenly and deliberately attacked by naval and air forces of the Empire of Japan." -- President Franklin D. Roosevelt, Dec. 8, 1941

Recent days have seen a heated debate among investors wondering whether we should have let the Big Banks fail after all. Would a Big Bank Breakup unleash value hidden within deep within megabanks JP Morgan (NYSE:JPM), Citibank (NYSE:C), and Bank of America (NYSE:BAC)? Would it render American banks less capable of competing with the "national champions" of European banking?

It's a debate worth having. Despite continued uncertainty in banking, the stock market continues to cling to its hard fought gains. That's been good news for my defense portfolio, which has seen strong gains in recent weeks.

But before checking in on the portfolio, we'll pause to remember the heroes who died at Pearl Harbor, Ford Island, and Hickam Field.

...

Company

Starting Price*

Recent Price

Total Return (%)

General Dynamics

$51.24

$67.54

31.8%

Raytheon

$41.99

$52.65

25.4%

Lockheed Martin (NYSE:LMT)

$77.07

$78.21

1.5%

AeroVironment

$29.96

$29.10

(2.9%)

iRobot

$11.49

$15.89

38.3%

Force Protection

$4.57

$5.35

17.1%

AVERAGE RETURN

 

 

18.5%

S&P Spyder

$88.17

$111.01

25.9%

DIFFERENCE

 

 

(7.4)

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

And now we return to our previously scheduled programming
Time marches on, and conflicts change. Pearl Harbor gives way to the worst attack on American soil since Pearl Harbor, and the nation goes to war again.

There's been a lot of news in the defense industry since Thanksgiving Day interrupted our pattern of weekly updates. Last week alone, we saw Northrop Grumman (NYSE:NOC) threaten to pull out of the KC-X Tanker competition, potentially handing Boeing (NYSE:BA) a very profitable contract unopposed.

While that would be great news for Boeing, it's actually not necessary for the company's survival. Last week, Boeing landed one of the biggest contracts-you-never-heard-of -- a $6.4 billion deal to build "Growler" electronic warfare aircraft for the Navy.

And also last week, Lockheed Martin made a bid to swipe Boeing's position as the lead contractor running the nation's strategic missile defense programs. "Ground-based Mid-course Defense," or GMD has generated (or will generate) some $18 billion in Boeing revenues through the end of 2011. With $6 billion more at stake via the new contract that Lockheed is targeting, this contest is another one we'll want to keep an eye on.

Look boss! De plane!
In fact, Boeing pretty much swept the field for headlines last week. Even news of the $1.7 billion engine contract that United Technologies (NYSE:UTX) won carries a Boeing slant. The 208 F117-PW-100 engines, spares, and parts that United Tech will provide are slated for installation on -- you guessed it -- Boeing C-17 transports.

And yes, Virginia, that contract could grow even bigger if EADS doesn't get its act together soon and get its A400M transport airborne soon. The coalition of countries building the C-17 rival lost an important customer last month, when South Africa canceled its order for eight A400M's, citing spiking costs and continual delays in the aircraft's development. EADS makes a last-ditch effort to salvage the program this week, when the A400M is scheduled to make its maiden flight.

Just one thing
All of which pales in comparison to this week's big story: President Obama's speech on Afghanistan. When last we tuned in to this channel, I promised to each week address "one big news item" driving near-term investing in the U.S. defense industry. Today, Afghanistan is that thing.

U.S. defense stocks have badly lagged their S&P 500 peers since I began this column. But that gap closed dramatically last week as investors placed bets on who will profit from a 30,000 troop-surge into the Afghan mountains. F-35 manufacturer Lockheed turned from red to green on our portfolio and PackBot-maker iRobot surged nearly 15 percentage points since our last check-in. But as I argued last week, investors are making a big mistake in betting on the hardware makers here.

Reading between the lines of Mr. Obama's speech, his clear intent is not to expand the war effort, but to wind it down. We're surging today so that we can more safely withdraw tomorrow. This being the case, investors are best advised to invest in the companies that provide not the hardware but the services necessary to accomplish the withdrawal.

Planes, tanks, and armored trucks aren't the story here, folks. Rather, you need to predict who will win the contracts to train the Afghan National Army so that it can take over the fight. Companies with experience running complex projects -- Boeing, Lockheed, Northrop -- are all front-runners. But to my Foolish eye, there's one company with an even better chance of profiting from the ending of the Afghan War. What is that stock? Click here to find out.

Looking for other high-tech defense prospects for your portfolio? Check out Motley Fool Rule Breakers, where we're looking into options in everything from UAVs to missile defense, from bombproof trucks to bulletproof soldiers. Thirty-day free trials are available on-demand.

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 recommendations. General Dynamics is a Motley Fool Inside Value selection. Why do we tell you this? Because The Motley Fool has a bulletproof disclosure policy, that's why.