Secretary Gates Announcement Sends Defense Stocks Higher

F22 RaptorSecretary GatesDefense Secretary Gates spoke today on the future direction of the Pentagon’s weapons programs and specifically how this change of direction will impact military personnel, existing weapons programs and long term planning.  He touched on a large number of specific programs such as the Joint Strike Fighter.

Large government contracting firms Lockheed Martin (NYSE:LMT), Northrop Grumman (NYSE:NOC), SAIC (NYSE:SAI) and others were up on the news. It appears Wall Street has been looking for clarity around what specific plans Gates had, how dramatic the spending changes and what government contracting firms ultimately win or lose.

The proposed shift of the military is away from a large scale confrontation with a traditonally robust military such as China or Russia and geared more for a surgical and strategic approach toward dealing with future threats.

His presentation was comprehensive in its coverage of every major weapons group, personnel, intelligence, satellites, helicopters, UAV’s, lasers, vehicles, troops and very much more.

Secretary Gates outlined his plan in three general areas: 

Predator UAV1) A Home for the War-fighter

2) Conventional and Strategic Modernization

3) Acquisition and Contracting Reform

Secretary Gates had three “Principal Objectives”

1) Reaffirm our commitment to take care of the all-volunteer force

2) Re-balance the Defense Department’s programs toward future scenarios and hedge against today’s risk

3) Overhaul the Pentagon’s approach to procurement, acquisition, and contracting

You can read the the full text of his speech and learn more about the specific and significant components of his presentation. Secretary Gates aim will not focus on fitting his strategy under a top line budget management approach; but rather on what he called a “holistic assessment of capabilities, requirements, risks and needs for the purpose of shifting this department in a different strategic direction.” Gates went on to say “Let me be clear: I would have made virtually all of the decisions and recommendations announced today regardless of the department’s top line budget number.

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