(FORTUNE Magazine) – Congress may be ready to trim defense spending, but Wall Street has already wielded its ax--the stocks of many defense contractors are down sharply from their recent highs. FORTUNE agrees with the consensus that some procurement programs will get whittled (see Politics & Policy). But security analysts point out that while many companies could be hurt, others should emerge unscathed. The falloff in their stocks, they say, offers a rare opportunity to get on board before an ascent resumes. The companies below aren't household names, but they're all tied into juicy defense procurement programs that generals and admirals will defend from congressional economizers. Wall Streeters consider most of their stocks cheap to boot. One sure-fire survivor of a budget battle would be Atlantic Research Corp. The Virginia-based company is a leading supplier of rocket motors and gas generators used to propel the Trident, Stinger, and Tomahawk missiles. But analysts are most excited about Atlantic Research's contract to provide rocket motors for the Army's new Multiple Launch Rocket System, a field artillery vehicle with a porcupine-like ability to fire off a dozen missiles in seconds. Under subcontract to LTV, Atlantic Research will provide some 360,000 rocket motors for the program under the company's largest contract, worth $250 million over the next five years. Byron Callan, a defense stock analyst at Prudential-Bache, thinks such contracts should propel Atlantic Research's profits upward at a 25% annual clip over the next five years, and he's advising clients to buy. One of the plumpest military projects is Milstar, the new satellite communications system. The project, reportedly including nine satellites and 4,000 earth stations, is designed to provide a communications system capable of surviving nuclear attack. The strategic importance of this multibillion- dollar program, analysts say, makes it virtually invulnerable to budget whackers. One sure beneficiary stands to be Stanford Telecommunications, a small satellite communications company in California's Silicon Valley. Stanford's contracts to provide gadgetry and to test designs for the Milstar program should add $30 million or more to revenues over the next five years, figures James Jeffs, an analyst at Seidler Amdec, a small Los Angeles broker specializing in defense-related research. The stock has plunged from its earlier highs, but Jeffs maintains that the company's growth rate of 35% per year in profits is unimpaired. For the fiscal year ending in March, he expects Stanford to ring up 50 cents in earnings per share, a figure that should double by 1987. Though the company's price-earnings multiple is lofty, Jeffs considers the stock a bargain given Stanford's stellar prospects. Down the road is Avantek, yet another flourishing supplier to the Milstar program. The company designs and manufactures high-frequency components used in commercial and military communications. One big seller is its low-noise amplifier, used commercially to amplify satellite transmissions for television. These amplifiers have come under increasing price competition from Japanese suppliers and Avantek's profit margins have suffered. But on the military sales side, which accounts for half of total revenues, analysts foresee rich returns. Broader-frequency, low-noise amplifiers sold to the military for detection and relay of Soviet transmissions are bringing home the profits. Charles Hill, an analyst at Kidder Peabody, expects Avantek to earn $1.10 per share in 1985, and to keep profits climbing at a 25% annual clip through 1990. One of the tiniest players in the burgeoning market for military software services is Comptek Research of Buffalo. At a recent price of $8.75 per share on the over-the-counter market, Comptek's total market capitalization adds up to less than $19 million. But analyst Fred Kittler at First Albany, a regional brokerage house that concentrates on defense stocks, expects that figure to balloon as Comptek grabs an increasing number of software service contracts for the military's electronic warfare buildup. Many of Comptek's contracts involve updating the Navy Tactical Data System, a ship-based computer system that tracks enemy forces and trains weapons on targets. Such services, says Kittler, are far too vital to be cut. Comptek, he says, should post a 22% earnings increase for the fiscal year ending in March, and it could even outpace that impressive gain next year if it succeeds in landing a new contract to upgrade some software programs on the Air Force's EF-111 tactical jamming aircraft. First Albany has eight other defense stocks on its recommended list. One is Helix Technology of Waltham, Massachusetts, a maker of cryogenic coolers used to lower the temperature of heat-sensitive infrared snooping devices that permit a tank crewman or pilot to see targets in the dark or under adverse weather conditions. Sales to the military account for about one-third of total revenues. Helix's other main business is supplying cryogenic vacuum pumps for use by the semiconductor manufacturing industry in the processing of silicon wafers. Both businesses are booming. Connecticut-based Raymond Engineering is another up-and-comer. The company specializes in producing high-tech gear that can withstand the stress of battle. One of its digital recorders is reportedly mounted next to the main gun on the F-14 fighter plane. Raymond's next feat is expected to be the introduction of a battle-hardened Winchester disk drive for computers. Kittler thinks the increased use of computers in battlefield equipment will cause Raymond's earnings to bound ahead at a 20% annual clip. With the stock selling at only 5.7 times his 1985 estimate of earnings per share, Kittler considers it a steal.

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