U.S. defense stocks have been witnessing a solid rally over the past couple of years. Rising geopolitical tensions across the globe along with President Trump’s supportive policy reforms remain the major drivers for this space. 

Interestingly, while the recent geopolitical tussle between the United States and some of its long-standing opponents has been a growth inhibitor for a few American industries, in case of defense stocks, it has acted as a catalyst.

Solid Q3 Earnings Picture

As of Nov 21, 90.9% of the companies in the Zacks Aerospace sector, which includes defense stocks, reported Q3 results. Notably, 70% of these stocks came up with earnings and revenue beat. Sector behemoths like Lockheed Martin (LMT- Free Report) and Boeing (BA - Free Report) beat earnings estimates. No doubt, encouraging quarterly results have set the stage for the addition of defense stocks to one’s portfolio.

Lucrative Foreign Market

With technological upgrades, America’s combat-proven weaponries are becoming all the more lethal, thereby boosting their value in the international weapons market. According to the latest report from the Aerospace Industries Association (AIA), the United States led global exports in the aerospace and defense industry in 2017 accounted for 34% of the industry’s total exports. We expect this winning streak to continue.

4 Hot Choices

We have selected four defense stocks that have gained more than 8% on a year-to-date basis and the rally is expected to continue, thanks to the aforementioned factors. It is imperative to mention in this context that each of these stocks outperformed the S&P 500 Index. The index has lost 1.5% year to date. In such circumstances, adding defense stocks to one’s portfolio seems prudent. These four stocks carry a Zacks Rank #1 (Strong Buy) or 2 (Buy).

Teledyne Technologies Inc. (TDY - Free Report) is an industrial conglomerate. The current-year earnings growth rate expectation for this Zacks Rank #1 stock is 37%. The company surpassed the Zacks Consensus Estimate in the past four quarters with the average surprise being 12.92%. Its shares have gained 19.2% year to date.

Safran SA (SAFRY - Free Report) is an aircraft-engine maker. The long-term earnings growth rate expectation for this Zacks Rank #1 stock is 11%. The company boasts a P/E ratio of 22.82, which is cheaper than the industry’s ratio of 39.6%. Its shares have gained 19.7% year to date.

Engility Holdings, Inc. (EGL - Free Report) is a leading provider of integrated solutions and services. The long-term earnings growth rate expectation for this Zacks Rank #2 stock is 5%. The company surpassed the Zacks Consensus Estimate in the last four quarters with the average surprise being 19.98%. Its shares have gained 9% year to date.

CAE Inc. (CAE - Free Report) is a worldwide leader in training for the civil aviation, defense and security, and healthcare markets. The fiscal-year earnings growth rate expectation for this Zacks Rank #2 stock is 8%. The company surpassed the Zacks Consensus Estimate in the last four quarters with the average surprise being 4.28%. Its shares have gained 8.5% year to date.