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The Best Defense: Sizing Up U.S. Defense Contractors

Defense spending is due to increase regardless of which party is in the White House, but the stocks of most contractors already look pricey.

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Terrorism and armed conflicts are becoming a regular occurrence in certain parts of the world. Their impact has been heightened here in the United States during a particularly heated presidential election season that has partly centered on the country's standing in the global economy. It's natural to think that such rhetoric would lead to increases in defense spending on everything from next-generation submarines and airplanes to cyberwarfare technology, regardless of which candidate winds up in the White House.

Equity analyst Chris Higgins, who covers defense contractors for Morningstar, says that a lot of the campaign debate is largely noise, however. Indeed, a better barometer for defense spending is not what candidates say on their soap boxes, but rather an assessment of global threats and government deficits. Adding a layer to Higgins' analysis of U.S. contractors is a raft of spending on share repurchases and hefty dividends, which have helped push valuations above Morningstar's fair value estimates.

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Rob Wherry does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.