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Top Defense Stocks for North Korea Conflict (LMT, NOC, GD, RTN, BA, T, CTL, BAH, IBM, HPQ)

Computer Password
Source: Thinkstock
North Korean television this morning broadcast another thinly veiled threat against the United States. In a translation provided by the U.K.’s Guardian newspaper, North Korea said:

The U.S. should not forget that our precision targeting tools have within their range the Anderson air force base on Guam where the B-52 takes off, the Japanese mainland where nuclear submarines are deployed and the navy bases on Okinawa.

North Korea already had threatened a nuclear attack on the U.S., a threat that no one outside North Korea believes is within its capabilities. But all this tough talk could lead to a bump in U.S. defense positioning and an increase in defense spending, currently facing a spending cut of $45 billion through the end of the 2013 fiscal year in September.

Defense contractors like Lockheed Martin Corp. (NYSE: LMT), Northrop Grumman Corp. (NYSE: NOC), General Dynamics Corp. (NYSE: GD), Raytheon Co. (NYSE: RTN), Boeing Co. (NYSE: BA) and BAE Systems have all seen share prices fall by as much as 8% since the beginning of the year before recovering to current levels of around plus or minus 1%. The share price move likely reflects on an aspect of defense that has come front and center only recently: cyber security.

A cyberattack against several of South Korea’s broadcasters and banks yesterday is being attributed to the North Koreans. When you stop and think about it, North Korean cyberattacks are disruptive, inexpensive, and far less likely to draw a military response from the United States, Japan or South Korea. It is a nearly perfect threat.

The U.S. companies that are developing systems to thwart cyberattacks from North Korea, Iran, or any other country with a bone to pick with the U.S. are the most likely to benefit from the heightened focus on cyber warfare.

Both Raytheon and Lockheed Martin have joined AT&T Inc. (NYSE: T) and CenturyLink Inc. (NYSE: CTL) in the U.S. Department of Homeland Security’s Enhanced Cybersecurity Services program under which the companies may have access to government intelligence that they can use to beef up their cyber security services and then resell the services to their own customers. President Obama issued an executive order in mid-February authorizing the program.

Raytheon and General Dynamics have acquired a host of cyber security companies in the past five years or so and, along with Lockheed Martin, are actively offering cyber security products both to the government and to private businesses. Consulting firms like Booz Allen Hamilton Holding Corp. (NYSE: BAH) and International Business Machines Corp. (NYSE: IBM) are also in the cyber security business, as is Hewlett-Packard Co. (NYSE: HPQ).

One other defense sector that could see a boost is missile defense. After all, if North Korea is threatening to fire missiles at U.S. installations and even the U.S. mainland, then it’s possible that there will be some additional calls within the U.S. for developing a massive — and massively expensive — missile-based defense system. Raytheon is the country’s leading missile maker.

For the traditional defense contractors, cyber security is a far cry from multibillion dollar weapons systems’ contracts, but they will go where the money is. And right now, the money is in cyberspace.

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