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Stock Picker Plays the Pentagon

It sounds like the ultimate in defensive investing: Buying the stocks of defense contractors. It also might sound like folly, given the belief that President-elect Obama will cut defense spending.

"I don't think he's really going to come in right away and cut defense spending," Troy Lahr of Stifel, Nicolaus told CNBC.

"Everything we're hearing from a lot of his advisers is that the budgets, near-term, are going to remain pretty much intact, so we think that the market is pricing-in some cuts to defense spending, and we think you can take advantage of that."

Recommendations:

Topping Lahr's list of recommended defense stocks is Raytheon.

"There's a big international mix, and we think that their budgets hold up," he said. "Either way, even if they come in and Obama does potentially try to cut some programs down the line, we don't see a lot of exposure at Raytheon."

He also likes Lockheed Martin.

"They do a lot of electronics, training systems, things like that, and those should hold up very well."

Also on his list is Boeing.

"They have about six to seven years' worth of backlog to work though, to get them through this downturn, and the market's kind of pricing in a worst-case scenario with Boeing," he said. "We think it's pretty attractive at these levels."

Disclosures:

Lahr's firm provides non-investment banking securities-related services to Raytheon.

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