Many investors look at the headlines and see that the defense budget is being cut and they immediately assume that this is bad for defense stocks.
However, if you take the time to dig down into the budgets numbers you see that many of the cuts have to do with reducing the size of the force and eliminating older weapon systems.
Equipment and systems that allow troops to do more with less like command and control technologies and drones are still going to be in very high demand as will more efficient weapon systems.
Investors also need to consider that global defense spending is going to increase this year for the first time since 2009. While much of that is going to come from countries like China and Russia and will be of no benefit to US based defense contractors, as they can and do sell to some of the hot test markets for weapons and military systems like Saudi Arabia and Oman.
Saudi Arabia has seen its defense budget triple in the past decade and spending is currently growing at about 30% a year. A significant percentage of that money will be spent with U.S. companies.
Here are three defense stocks that could benefit from the coming U.S. defense budget: