Is it time to short defense stocks?

— -- Q: Is it time to short defense stocks?

A: Given the serious budget deficits and debt load faced by the U.S., there's no question cuts need to be made in government spending.

And as part of the deal over the USA's debt ceiling, lawmakers will be looking at a complicated process to shave a big chunk of the deficit. Americans will need to eventually live within their means.

It's difficult to know exactly where the cuts will come from. It's a highly political process and one that will result in some budget decisions that aren't based entirely on what makes the most sense financially.

But there are certainly areas in the federal budget with gigantic targets on their backs. One of the biggest uses of federal money is defense spending, based on an analysis by DoubleLine Capital. Defense spending could be one of the primary targets for big cutbacks and any defense spending cuts could be a huge problem for the big defense contractors.

But, surprisingly, other than General Dynamics, most of the other defense contractors have not had as large a loss this year. The list below shows how the shares of some of the top defense contractors are faring this year:

Here's the key: Just because the federal defense budget may be cut doesn't mean defense stocks will fall. Investors are trying to forecast how much the defense budget might be cut and which contractors will be affected most. And keep in mind that while Boeing is a significant government contractor, it also has its general aviation unit that is performing better.

So rather than assuming all defense contractors will suffer equally if the defense budget is cut, investors will need to evaluate each bidding contest separately. Only by looking at each company specifically, will investors be able to figure out if investors are being too optimistic about each defense contractor's prospects.

Matt Krantz is a financial markets reporter at USA TODAY and author of Investing Online for Dummies and Fundamental Analysis for Dummies. He answers a different reader question every weekday in his Ask Matt column at money.usatoday.com. To submit a question, e-mail Matt at mkrantz@usatoday.com. Follow Matt on Twitter at: twitter.com/mattkrantz