However hard the market slams a stock, there's always the chance it'll come bouncing right back. We'll consult our Motley Fool CAPS community to find shares on the rebound, examining one specific sector of the economy in search of companies with rising CAPS ratings.          

There are 40 stocks listed under aerospace/defense in the CAPS' screener, but more than a handful of them carry well-respected four- and five-star ratings. Those accolades mean our 170,000 CAPS members are confident that these stocks will beat the market in the months ahead, but let's see what members are saying about the ones below:


CAPS Rating
(out of 5)

Recent Price

52-Week Price Change


5-Year Growth Rate

Lockheed Martin (NYSE: LMT) **** $69.16 (11%) 8%
Raytheon (NYSE: RTN) **** $47.01 (10%) 8%
Spirit Aerosystems (NYSE: SPR) ***** $19.46 2% 9%

Source: Motley Fool CAPS; Yahoo! Finance.

The markets may be feeling better about the economy after a few reports have offset much of the drumbeat of negativism we've heard, and with the S&P 500 up 10% over last year, CAPS aerospace/defense stocks have done much better. The average stock is up almost 34% from the year-ago period.

Of course, helping those returns were performances like those by Astronics, which was up 164%, and BE Aerospace (Nasdaq: BEAV), which rose 78% year over year. Offsetting those performances were Raytheon and Lockheed above, as well as Smith & Wesson (Nasdaq: SWHC), which lost almost 19% in the same period.

So let's take a closer look at why investors think that some of these other companies won't be jumping from the frying pan into the fire now that the markets are roiled again.

Some spring in its step
Although many might want to count out a number of the biggest names in defense because of cutbacks in spending, the killing of various programs, and the tough competition for the contracts that remain, the events in Korea show why you can't ignore the potential Lockheed Martin and Raytheon possess.

Analysts say Pyongyang is simply posturing for the eventual transfer of power to occur in the country, but the saber-rattling could quickly escalate since Seoul may feel the need to respond. Lockheed, for example, has been a close partner with South Korea's defense systems, providing it with F-16 fighter jets and radar systems. Raytheon supplies Korea with its Patriot missile defense systems. The North's warning that war will be imminent if the U.S. and South Korea go forward with their joint military exercises brings into sharp focus why the defense contractors may have plenty of firepower left.

Nor is it only Korea that may want to bump up spending in a hurry. When North Korea lobbed a few rockets into the Sea of Japan last year, Japan became unsettled and wanted to purchase dozens of new Lockheed's F-22's, boosting the prospects of both Boeing (NYSE: BA) and United Technologies (NYSE: UTX) in the process. Obviously heightened tensions don't immediately translate into higher returns, as Lockheed and Raytheon both show, but when commenting about Lockheed, CAPS member duncan504 reminds us to remember the dividends:

Even if this remains flat throughout the year, you are still getting a 4% dividend which alone would have crushed the market over the past 10 years, seems like a no brainer.

But only you can determine if these defense contractors are right for your portfolio, so add Lockheed to your stock watchlist and let us know on the Raytheon CAPS page whether it's too cold of a calculation to think Korea going hot will benefit its bottom line.

Driving a bargain
Spirit AeroSystems, which has managed to eke out a small positive return, has done so no thanks to Boeing's constant Dreamliner delays, which have slashed Spirit's results. The plane represents 43% of Spirit's inventories and Boeing itself represents 85% of total revenues. As a spinoff from Boeing, the two are joined at the hip.

Yet CAPS member jormar1990 notes that Airbus is another significant customer for Spirit -- Boeing and Airbus represent 96% of total revenues:

Global leader in new and increasingly common composite aerospace structures. Big clients include both Boeing and Airbus. When Boeing finally starts 787 production, this stock will go up

One would imagine that when the Dreamliner finally does get delivered (and try not to laugh when I tell you Boeing assures us that will happen in February 2011), Spirit will take flight, too. Of course, it might not be as simple as all that. Let us know on the Spirit AeroSystems CAPS page (or in the comments section below) how long you think Boeing will keep the parts supplier grounded.

The ball's in your court
There are many factors that go into whether a stock is a buy or sell, so it pays to start your own research on these stocks on Motley Fool CAPS. Read a company's financial reports, scrutinize key data and charts, and examine the comments your fellow investors have made, all from a stock's CAPS page. Head over to CAPS today and share your thoughts with other investor analysts on whether you think these stocks are ready to bound higher.