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The war on terror is beginning to fracture defense and aerospace into two sectors. Defense suppliers -- particularly those that make fighter jets, weapons systems, and armored vehicles -- have been bolstered by the jump in the Pentagon's budget, from $287 billion during the Clinton presidency to Bush's current Iraq-bloated $430 billion outlay. But commercial aerospace has suffered. Fears of terrorism have kept travelers away, and surging fuel prices have further eroded profitability. There is such a glut of airplanes now parked in hangars -- roughly 2,000 at the most recent count -- that orders for new jets have fallen 60 percent below their 40-year average. It's no wonder most analysts are telling investors to stay out of commercial aerospace and focus on companies that benefit the most from military spending.

The exception is two-time All-Star Joseph Campbell of Lehman Brothers. When FORTUNE readers last heard from Campbell, 58, he was arguing that Boeing was cheap. At the time, shares were at a 52-week low and business looked bleak. But in the 12 months since Campbell gave us that pick, Boeing has gained 54 percent. Campbell himself earned a 16 percent return on his recommendations in 2003 and once again ranked as the most consistent stock picker in the sector. And he continues to veer away from the consensus.

This year Campbell is telling investors to avoid or sell stocks dependent on huge increases in military spending. His argument is that current budgets -- which are on a par with Vietnam-era military levels after adjusting for inflation -- are unsustainable. Whether or not President Bush remains in the White House for a second term, the country faces a budget deficit that will have to come down, either through tax hikes or spending cuts. Indeed, where Campbell would put money is in the downtrodden, forgotten commercial-aerospace side of the sector. There's no denying that the business is still weak and that U.S. carriers in particular are teetering near bankruptcy. But demand is swinging upward globally, with orders from fast-growing China driving the rebound.

That points to European giant EADS (EAD FP, $24), parent of Airbus. As you might expect from the counterintuitive Campbell, more than half of the analysts who follow the company rate it either a sell or a hold. In fact, EADS -- which derives two-thirds of its sales from commercial jets and the remainder from defense sector spending -- just disappointed Wall Street with its quarterly results when it reported that orders for Airbus were weak. Campbell predicts an earnings turnaround, though, led by a sharp uptick in profit margins driven by a reduction of research costs. Airbus is readying itself to challenge Boeing's 747 with the launch of its new double-decker 555-seat A380 jet. That project alone has been eating up as much as $2.6 billion in annual expenses. (Orders for 129 jets have already come in.) Absent those costs, the savings will drop to the bottom line. EADS currently trades at a reasonable 20 times its trailing 12-month earnings. And Campbell expects profits to at least double by 2008. One practical drawback for U.S. investors is that EADS has yet to list itself as an ADR (American depositary receipt). If Campbell's take is right, however, it might be worth finding a broker who can buy shares of the company on the French exchange. Says the analyst: "We're at the beginning of a recovery that is clearly at hand."