My, what a difference a decade makes!

10 years ago, with the American economy deep in the throes of the financial crisis, I started writing a little column entitled "Is Your Portfolio Bulletproof?

In it, I suggested that despite all appearances to the contrary, the future was bright for defense stocks because their shares were trading at levels far below their historical "norm" of one-times annual sales. Suffice it to say that this ... was not a popular argument. Subsequent columns featuring alternate headlines -- anybody remember "6 Stocks That Never Surrender"? -- likewise failed to find a receptive audience, and after several months of trying to convince folks that defense stocks were due for a rebound, I gave up, and stopped writing about them.

You can probably guess what happened next: As if on cue, the "war on terrorism" picked up speed, defense spending boomed, and defense stocks exploded higher.

In fact, the past decade turned out to be an absolutely wonderful time to own defense stocks, producing multiple one- and two-baggers for investors (and a few up even more). Allow me to introduce you, then, to the three best defense stocks of the decade: Northrop Grumman (NOC 0.04%), TransDigm (TDG 1.44%), and Heico (HEI 1.78%).

Collection of military tank, aircraft, and warship silhouettes

Image source: Getty Images.

No. 3 Northrop Grumman

Northrop Grumman has been the No. 3 best-performing defense stock of the decade. The aerospace giant has been a stellar performer for investors over the last 10 years, appreciating 588% in price.

Most of this price appreciation, I suspect, is due to significantly improved profit margins in the business. You see, from 2009 to the last 12 reported months, Northrop's sales haven't actually increased all that much -- up just 9% in 10 years to $30.1 billion, even with the addition of Orbital ATK's revenue stream to the mix. Profit margins earned on those revenues, however, have exploded higher, nearly doubling from 8.4% operating margins in 2009, to 14% more recently.

As a result, even with revenue growth anemic, Northrop Grumman has managed to roughly double its profits to $3.2 billion earned over the last 12 months, growing annual free cash flow by about a billion along the way -- $2.6 billion. With Northrop nearly as profitable as it's ever been (margins have dipped a bit from their 2017 peak), it's no wonder investors have taken a shine to Northrop Grumman stock.

No. 2 TransDigm

Even better for investors has been TransDigm. Up 1,084% since the end of December 2009, this maker of airplane parts counts better-known defense companies such as Airbus, BAE Systems, Boeing, and Lockheed Martin among its customers -- and all five major branches of the U.S. military besides.  

A serial acquirer of other airplane parts suppliers, TransDigm has grown over the past decade from a company doing just over $760 million in annual sales -- to $5.2 billion. At the same time, profits have increased nearly 450%, from $163 million 10 years ago, to nearly $900 million per year today, according to data from S&P Global Market Intelligence. Importantly, free cash flow has kept pace with the expansion in GAAP profits. Over the past year, TransDigm's cash profits amounted to $914 million -- actually a bit ahead of reported profits.

And TransDigm probably isn't done growing yet. According to the consensus of analysts who follow the company, TransDigm's earnings are on pace to grow 16% annually over the next five years. That's not quite as fast as the 24% pace of annual growth, compounded, that TransDigm set over the past five years. But then again, TransDigm is a much bigger company now than it was even five years ago.

No. 1 Heico

And finally, the No. 1 performing defense contractor of the decade: Heico.

Like TransDigm, Heico is a parts-supplier, manufacturing, distributing, and servicing plane parts in its flagship flight support group division, at the same time as it does a brisk business selling electronics in its electronic technologies group. Unlike TransDigm, though, Heico focuses on manufacturing replacement -- not original -- parts to keep airplanes flying. As such, its biggest customers aren't the plane-builders themselves, but the customers that fly the planes after they're built -- such as the U.S. Army Contracting Command, Naval Systems Command, and the Defense Logistics Agency.

Up 1,280% since the end of December 2009, Heico has grown like TransDigm in part through rolling up other plane-parts suppliers.

Partly as a result of this effort, the company has nearly quadrupled its sales over a period of 10 years -- from $538 million a decade ago, to more than $2 billion in annual sales today. Profits have grown even faster, from $45 million earned in 2009, to $328 million earned over the last 12 months. And again, the company has done a good job of translating accounting profits into real free cash flow -- more than $400 million in cash profits generated over the past year.

With future earnings growth projected to exceed 14% annualized over the next five years, Heico stock -- up so much already -- could continue to grow for years to come.