DEFENSE

UIC

UIC is my pick in the defense sector (I actually picked this name last week, but I sort of overlooked it and regretfully did nothing). It is a small cap defense name. Very robust growth, high level of return equity and return on capital, large backlog, clean balance sheet, free cash flow positive, reasonable valuation (18.5X of its 05EPS of 2.85), in the right sector (defense, and a bit of exposure in the energy sector, although to be disposed), dividend, strong management, little analyst coverage, terrific chart with new high every day. Management appears to be focused, measured, confident and competent. Opened a small position at 52.50. I got be careful on the defense factor though, particularly this year as the Democratic could potentially won the mid term election, which will be rather bad news for the whole sector. A democratic President won in 2008 would be a disaster for the sector, not to mention the name could be Clinton!

To balance it out, I scaled some HRAY off to reduce exposure on this name. It is a flat trade, but it's acceptable. HRAY is in the panelty box for a while and my exposure is relative large. I will continue to scale back of this name.