Washington, D.C. - With third-quarter earnings season winding down, we checked in with Alex P. Hamilton, defense and aerospace analyst at New York brokerage Jesup & Lamont Securities, on his outlook and picks in two areas with very different prospects: makers of airplane equipment, and companies specializing in government technology services.
We'll start where the bulls are running now. "Commercial aerospace has been great," Hamilton says. "The end markets are awesome."
Hamilton explains that the commercial aerospace business tends to have five good years followed by five bad ones. He pegs 2004 as the start of the current upswing, meaning it should run until 2009. Factor in the rollout of two jets-- Boeing's (nyse: BA - news - people ) 787 and Airbus' A380--and the consensus thinking has the good times lasting to 2011.
As we've observed on occasion this year, aerospace equipment stocks have climbed along with expectations. The upward price movement gives even a bull like Hamilton pause.
"At the beginning of the cycle it was value investors," he muses, "Now it's momentum guys." Also troubling are high fuel prices, the possibility that tightening credit could lead to an economic slowdown and production delays for both the 787 and A380.
The latter item doesn't especially bother Hamilton. The delays have raised concerns, he suggests, and could dampen cash flow among certain suppliers. But they're unlikely to sink the jet programs altogether, and they're not enough to undo the broader aerospace recovery. "It might change the trajectory of it," he says, "but that's it."
Full story at Forbes.com