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The Latest Intelligence on Defense Stocks

Stocks in this article: CRDN ESL CACI

Editor's note: As part of our partnership with PBS's Nightly Business Report, TheStreet's Debra Borchardt joined NBR (watch video and read transcript here) to look at national defense stocks in the wake of Osama Bin Laden's death, and which ones are positioned to succeed despite potential budget cuts.

NEW YORK ( TheStreet -- Wall Street is still processing whether the death of Osama Bin Laden is a positive or negative event for the defense sector.

On the one hand, Bin Laden's removal could be presented as an argument for a reduced military presence as the news is a undoubtedly a big blow to al Qaeda. But all the rhetoric from the White House has been that the war on terrorism is not over, and that it's expected others will step up to take the place of the organization's iconic leader.

Prior to this news, however, defense spending was already on the chopping block as the federal government struggles under its massive deficit. The move of current Central Intelligence Agency Director Leon Panetta to Defense Secretary is seen as more evidence of that plan. Panetta spent four years as chairman of the House's Budget Committee and his congressional record has proven his willingness to when it comes to making defense spending cuts.

Word on the Street

In addition, Dr. Ashton Carter, the undersecretary of Defense for Acquisition, has predicted a number of big ticket arms programs could be canceled as soon as fiscal year 2013.

One of the few bull cases for the defense sector is the replacement cycle for equipment that was sent to Afghanistan and Iraq. The environment for the equipment is so harsh, that most of it is expected to be left in those countries. Little is expected to be brought back to the United States or used in other arenas.

Another bull argument is that the underperformance of defense stocks will limit further downside. However, Credit Suisse analyst Robert Springarn reminds investors that down cycles can last for years. There are defense stocks that can take advantage of this upheaval however. Small and midsize companies are racking up contracts at the expense of the big defense giants. Plus, some of the companies have exciting new technologies that the government and military are drawn to or can save the government money.

Here are a few names worth watching.

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