"The revenue outlook is improving because of new orders and demand for spare parts," Welo says.
Make no mistake, defense cuts will hurt some contractors. After peaking at $700 billion in 2010, the defense budget is likely to hit around $500 billion in coming years. The number of soldiers in the Army will drop from a recent high of 570,000 to 440,000.
But some contractors can continue to thrive because the budget will still fund many weapons systems.
Among the healthiest performers has been Lockheed Martin (LMT), the nation's biggest defense contractor. In the first quarter this year, sales rose 4%, while earnings climbed 23%.
The company derives a big percentage of its revenue from the F-35 Joint Strike Fighter, a program that the Air Force is planning to continue.
Besides weapons, Lockheed Martin is also a major supplier of information technology to many parts of the government. Demand for technology systems should continue to grow even if the number of military personnel drops in the future.
Another stock that recorded big gains in the past year is General Dynamics (GD). While the company is known for producing submarines and tanks, much of the growth has come from Gulfstream private jets. Some corporate customers are waiting four years to get their hands on models that sell for more than $60 million. Private jets should soon account for half the company's earnings.
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At the time of publication, the author had no position in any of the funds mentioned.
This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.