Investors devoted most of last week to a not-very-pleasant stroll down memory lane. One year after the entire financial industry imploded, we delved into the makings of the meltdown. We particularly questioned the wisdom of Goldman Sachs (NYSE:GS), Bank of America (NYSE:BAC), and all the rest who spent nearly $100 billion buying back stock before the crash.

But it wasn't all sackcloth, ashes, and nostalgia. Current events drove the market as well, as we saw an obscure accounting change give Apple shares a boost, witnessed the IPO market roar back to life -- and of course, debated the merits of health-care reform (such as it is).

Meanwhile, our Super-Six defense stocks just kept doing what they do best -- making sales, winning contracts, and keeping America safe. Let's see how investors are rewarding them:


Starting Price*

Recent Price

Total Return

General Dynamics (NYSE:GD)




Raytheon (NYSE:RTN)




Lockheed Martin (NYSE:LMT)












Force Protection (NASDAQ:FRPT)








S&P Spyder








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.

So basically, our Defense Portfolio tread water for five days, giving up a fraction of a percent to the S&P 500. Is that bad news?

One day, $52 million
The week started off grand for one of our tiniest defense contractors. Force Protection landed a proportionally huge $52 million contract to build four dozen Buffalo-class minesweeping MRAPs for the U.S. Army. Force expects to double that order over the course of next year, meaning that this single contract replaces about 10% of the revenue Force booked last year.

No sooner had Force announced this win than it warned that it's hunkering down for leaner times. Multiple contract losses to larger rivals have eliminated the need for a lot of industrial capacity. Going forward, Force will play to its strengths as an innovator of niche defense products, while simultaneously expanding its service division. The restructuring plan won immediate praise from Wall Street, as both Collins Stewart and Dougherty issued upgrades in response. As I mentioned last week, I like the move, too. But I wonder whether there's another shoe here, waiting to drop ...

$800 million, B'Gosh!
Speaking of the companies that ate Force Protection's lunch, Oshkosh booked another major contract win last week, when the Army placed an order for $800 million worth of the company's heavy trucks and trailers.

Adding injury to insult, Oshkosh followed up on this "HEMTT" win with a report that its M-ATV orders (that's the off-road MRAP contact that Force lost to Oshkosh in late June) could exceed 6,600 units as the military ramps up its presence in Afghanistan. At a unit cost exceeding $535,000 a pop, this contract could easily exceed $3.5 billion in value -- and expect this revenue to be booked quickly. Oshkosh has put the pedal to the metal on this project, and it expects to build M-ATVs at the rate of 1,000 per month by December.

Look! Up in the sky!
Moving from ground to air, the biggest news of the week was certainly Northrop Grumman's surprise win over Boeing (NYSE:BA) for the rights to service the nation's 60-unit KC-10 tanker fleet. Valued at $3.8 billion, the decision stunned Boeing backers, who figured -- quite logically, I should add -- that since Boeing had built the KC-10 (through McDonnell Douglas), and had previously serviced the plane, there was little risk that the Air Force would choose anyone but Boeing to keep on servicing the plane over the coming decade.

But that's precisely what the Air Force did.

The big question now, of course, is what Northrop's surprise upset portends for the Air Force's even bigger (estimates run anywhere from $35 billion to $50 billion for just the first installment) KC-X tanker competition -- the bird that Boeing has taken to calling the "United States Tanker." We all remember the shocking conclusion to last year's KC-X competition.

Now the Air Force has once again demonstrated that it couldn't care less what the politicos think about its decisions. It's going to award contracts where it thinks best, whatever the consequences. (Of course, the biggest consequence so far has been that the Air Force gets no tankers, and its warplanes are in danger of running out of gas.)

Foolish takeaway
So what does the KC-10 outcome portend for KC-X? Darned if I know. As I argued last week, I hope it turns into a chance for Boeing to play the part of "good loser" -- setting the stage for Northrop to gracefully concede defeat if it loses KC-X. The danger is that everything continues as it has so far -- Boeing appeals the KC-10 verdict, Boeing-or-Northrop then cries foul whenever KC-X is announced, and on, ad infinitum.

One thing we can all agree on: That's the last thing we need.

Tired of the drama surrounding Boeing and Northrop, but like the military sector's prospects in general? Take Motley Fool Rule Breakers for a spin, and learn which defense stocks we think will reward you -- without the "headline risk." 30-day free trials are available on-demand.

Fool contributor Rich Smith likes some of these stocks so much that "he bought the company." Namely: Boeing, AeroVironment, and Force Protection. AeroVironment and iRobot are Motley Fool Rule Breakers recommendations. General Dynamics is a Motley Fool Inside Value selection. Apple is a Motley Fool Stock Advisor recommendation. The Motley Fool has a disclosure policy.