Meet the Street: The War Dividend

Even though President Bush's proposed $379 billion defense budget was higher than what many experts expected, it wasn't a huge surprise to Wall Street. The smart money had already bid up major defense stocks in recent weeks, with Lockheed Martin(LMT Quote) up 14% year to date and Raytheon(RTN Quote) up 15.1%.

Jim Zhao, Defense Analyst, Federated Investors

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But it's not too late to invest in the sector, according to Jim Zhao, a defense analyst with Federated Investors. Zhao believes these stocks will continue to benefit from increased defense spending over the next three to five years. Specifically, he believes that stocks of military contractors that execute well on their business plans stand to increase as much as 15% in the near term. And once the economy begins to recover and investors rotate out of defense stocks and into consumer cyclicals, that should be an especially good time to buy defense issues. ...