As the aerospace world converges on Farnborough for this week's air show, conventional wisdom is that it will be a story of two industries: a booming commercial aircraft sector flush with bulging order books, and a defense segment battered by government budget cuts and scrambling for new markets. But things are hardly that clear-cut. Here are a few questions to consider: The past 18 months have been filled with accounts of military budget cuts, "sequestration" and declining revenues. Yet amid this downturn, the stocks of large defense contractors have outperformed the market, in some cases by wide margins. Lockheed Martin and Northrop Grumman, for example, have seen their shares rise three times faster than the Dow Jones Industrial Average (see table). To some degree that makes sense: Defense companies have sought to get ahead of the downturn by aggressively cutting costs, which has boosted profit margins.
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