So, yeah ... health-care reform. With the reconciliation bill's passage last night, it appears we're all in for a few changes.

In particular -- and as fellow Fool Brian Orelli suggested earlier this week -- the extension of insurance benefits to millions of previously uninsured persons is good news for generic drugmakers like Teva (Nasdaq: TEVA), whose stock is on the rise. But not everyone's thrilled with the new health-care largesse. Industrial companies like Caterpillar (NYSE: CAT) and Deere (NYSE: DE) are touting up the legislation's cost to their bottom lines, predicting a combined $250 million in extra expenses this year -- and I suspect an awful lot of defense stocks are in the same boat.

Credit Suisse estimates that big S&P 500 companies with large retiree populations (and these make up half our portfolio) will report $4.5 billion in health-care related charges this quarter. Could this be the reason that defense stocks lagged the market this week?


Starting Price*

Recent Price

Total Return

General Dynamics








Lockheed Martin (NYSE: LMT)












Force Protection








S&P Spyder








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

Because as we're about to see, health-care reform aside, business is still booming in the defense industry.

Defense news roundup
This week got off to a surreal start, as news reports swirled of a possible bid on the KC-X Tanker project from ... Russia? Supposedly encouraged by Northrop Grumman's withdrawal from the competition, Russia's United Aircraft Company was said to be in the process of preparing an offer to tweak its Il-96 airliner to suit the role of U.S.A.F. flying gas station.

Crazy idea? Apparently so. The Kremlin quickly quashed the notion in a series of press releases Monday. There's still a chance that Europe's EADS will give Boeing (NYSE: BA) a run for its money. But Air Force pilots can now rest easy -- at least they won't need to learn to read Cyrillic to fly their new tanker.

UPS enlists
In other news, UPS (NYSE: UPS) announced its participation in a U.S. Transportation Command competition for Defense Department contracts yesterday. Five selected companies (including archrival FedEx (NYSE: FDX) will compete daily for portions of $870 million in DoD international shipping work to be allocated between April 2011 and March 2012.

General D blows the bugle
Meanwhile, portfolio stalwart General Dynamics announced its participation in an even bigger tender. General D is teaming up with rival Oshkosh to bid on contracts to build Tactical Armored Patrol Vehicles and Medium Support Vehicles for Canada. With more than 2000 vehicles on order, more than a billion dollars is at stake for the winners.

And speaking of winners, General D also announced its victory in a U.K. tender to build armored reconnaissance vehicles for the British army. That one's worth a cool $6 billion, and it's firmly in the bag.

Dogfight heats up
Our weakest performing stock this week has been Lockheed, which got slammed by an Oppenheimer downgrade on Monday. Oppy opined that, within the aerospace sector, it much prefers Boeing over its rival -- and as we discovered just yesterday, Oppenheimer's not alone.

Turns out, a last-minute concession on pricing may be enough to snag Boeing dozens, scores, perhaps even a handful-of-hundreds of F-18 contracts that the Pentagon previously thought too pricey to contemplate. On the one hand, this is good news for the U.S. Navy, which was facing the prospect of having a lot of unwanted free "parking spaces" atop its aircraft carriers in a few years.

The early birds catch the worms
On the other hand, it's great news for Boeing. Noticing that retirements of old Lockheed F-16s were combining with delays in production of new Lockheed F-35s to create a fighter gap, Boeing boldly stepped into the breach and offered to supply F-18s at a discount. Not only will this plump out Boeing's revenue stream, it threatens to diminish the number of slots (and funds) available for Lockheed's F-35 sales in the future.

Foolish final thought
And yet ... I cannot help but notice that the pessimism now surrounding Lockheed mirrors the doom and gloom about Boeing last year. Sure, Boeing was two years late getting its 787 Dreamliner off the ground -- but fly it did. And once investors became convinced that Boeing was back on track, the stock soared as well.

Could Lockheed investors experience a similar epiphany? After Boeing got its troubles worked out, people began focusing less on the bumps in the road, and more on the company's $350 billion in backlog. But Lockheed's with future F-35 costs estimated at upwards of $1 trillion -- more than three times Boeing's backlog -- Lockheed arguably offers an even greater opportunity.

Don't let it pass you by.

Lockheed's stock has lagged the market badly over the past year. But is it a bargain, or a value trap? Find out the difference here.

Fool contributor Rich Smith owns shares of AeroVironment. General Dynamics is a Motley Fool Inside Value pick. AeroVironment and iRobot are Motley Fool Rule Breakers recommendations. FedEx is a Motley Fool Stock Advisor recommendation. United Parcel Service is a Motley Fool Income Investor pick. Try any of our Foolish newsletters today, free for 30 days. The Motley Fool has a disclosure policy.