with budget cuts looming should investors be avoiding the defense contractors, for-profit universities, healthcare industries, etc? or does it not make much difference?
The short answer is that is does not make a difference.
There are a considerable number of analysts at mutual fund companies, hedge funds, endowments, etc. trying to gain an advantage through research. For example, they probably already have a sense of which government defense contracts are subject to early termination and/or delay and which contractors will be affected. Best estimates, reflecting the probabilities of various scenarios, are likely already in the price. This reflects the view that markets are fairly efficient at reflecting public information. Unless you truly have private information on companies with significant gov't funding, in my opinion you would be speculating if you bought or sold on the basis of public information.
A better approach is to focus on the overall structure (diversification, risk, etc.) of your portfolio in terms of its ability to meet your needs. This may not be the answer you are looking for but I hope it helps. Good luck.