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6 Defense Picks for Diversification

5. L-3 Communications is a security contractor with operations spanning across command, control, communications, intelligence, surveillance and reconnaissance (CCCISR), aircraft modernization and maintenance (AM&M), government services and electronic systems.

Consolidated net sales for the third quarter of 2010 were flat at $3.8 billion, relative to the same quarter last year. The AM&M segment reported a 4.8% drop in sales, offsetting the 7.5% increase in CCCISR sales.

Reviewing the quarter, Michael T Strianese, L-3 president and CEO, said, "Despite softer-than-expected sales, our Intelligence, Surveillance, and Reconnaissance businesses continued to see robust demand and we were able to expand margins and generate strong cash flow." Operating margins improved by 50 basis points to 11.4%.

Net cash was $395 million for the quarter. Acquisitions during the quarter included a couple of companies in unmanned systems and satellite communications space worth $93 million. The stock is trading at 11 to 12 times its estimated 2011 earnings.

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