Editor's Note: Jon D. Markman writes a weekly column for CNBC on MSN Money that is republished here on TheStreet.com.
Misguided missiles seem to be flying around the world at record rates these days. Predictably, shares of the largest defense contractors are hitting all-time highs. Investors have always turned to big Pentagon vendors for safe haven in times of fear and mayhem. Yet I can't help wondering if the smell of burning cordite won't be coming just from these companies' products but also from their falling stocks. They're rather expensive at a time when military spending is slowing. Shares of most small defense contractors already have been pummeled, with many trading at multiyear lows. Either the smaller companies will soon turn around or the larger outfits will stall. The latter is more likely, as military spending plateaus from sheer exhaustion in the U.S. after a tremendous post-9/11 rise. The defense budget may face trimming if Democrats win a majority in Congress this fall. So what's the right strategy to put your portfolio on a war footing? Go long selected defense contractors now, but trail a sell-stop to capture profits in case peace breaks out. Meanwhile, avoid contractors with a lot of exposure to commercial aviation.