And so it begins.

One week ago, I threw down the gauntlet before Mr. Market. Following the Motley Fool tradition of defying conventional wisdom, I made the following preposterous proposal:

I intend to pick a portfolio of stocks, all drawn from a single industry, which will beat the market. No, not just beat it -- crush it. ... My best half-dozen defense ideas versus whatever the S&P 500 can throw at me.

Surveying the industry, I first chose three superb large caps occupying key defense sectors:

Lending long-range fire support to these Three Musketeers, I chose a trio of fast-growing up-and-comers -- not all of them quite as cheap, but with even greater growth prospects:

In total, six companies to conquer the market. Here's how my team fared last week:

Company

Starting Price*

Recent Price

Total Return

General Dynamics

$51.54

$54.76

6.2%

Raytheon

$42.27

$45.50

7.6%

Lockheed Martin

$78.28

$82.49

5.4%

AeroVironment

$29.96

$31.60

5.5%

iRobot

$11.49

$13.54

17.8%

Force Protection

$4.57

$5.01

9.6%

AVERAGE RETURN

--

--

8.9%

S&P Spyder

$88.17

$93.11

5.6%

DIFFERENCE

--

--

3.1

Source: Yahoo! Finance.
*Tracking began on 10 July, 2009. Recent price reflective of July 16 closing price.

A propitious start
Coming off the rally that's lifted stocks across the board, I expected to find my shares trading at least a little higher today. And in fact, the rising tide that lifted so many boats this week lifted mine even higher. We notched a 3.1 "beat" for the week. Although, with defense-related stocks taking a beating today, next week may not be so kind to the portfolio.

The week in defense
Now, why did I name Lockheed, Raytheon, and General D among my top picks in the sector? As I explained last week, valuation mattered most. But also, consider how consistently these companies get tapped to perform crucial services for the government.

For months, we've been awaiting the outcome of an Air Force contest to choose three lucky winners to construct an S-band radar "space fence" to keep track of the growing debris field imperiling rocket launches around the globe. Last week, two of my top three names -- Lockheed and Raytheon -- netted $30 million contracts under the program (the third win went to Northrop Grumman).

But don't cry for General Dynamics, for it didn't lose out to Northrop. To the contrary, along with AT&T (NYSE:T), General D was part of the team backing Lockheed's play. End result: All three of my large-cap picks turned up winners this week.

"Jobs created and saved"
Now let's look over some other key developments in the defense sector. Defense companies may be doing well this week, but defense company employees aren't exactly all smiles. On Tuesday, Boeing (NYSE:BA) announced it's laying off 1,000 workers in response to Pentagon defense cuts. Lockheed handed out 600 pink slips to workers on its canceled Presidential Helicopter program. And Boeing and Lockheed combined (in the form of the "United Space Alliance") are laying off a further 400 workers due to cuts at NASA.

Closer to ground level, MRAP-builder Navistar (NYSE:NAV) laid off 275 employees after losing the Pentagon's M-ATV competition. But on the flip side, the company that beat Navistar is on a hiring spree. Oshkosh (NYSE:OSK) announced it is hiring 300 to 500 new workers to help churn out the M-ATV. In fact, Oshkosh has so much on its plate now that it's recalling 550 to 650 JLG employees who were previously laid off from their jobs.

Net "jobs created or saved" as a result of this contract -- at least 700.

But for how long?
The biggest news of the week, though, is so far just a preview of things to come. Over in Congress, both the House and Senate maintain their collision course with the White House.

Senators McCain and Levin have so far been unable to remove funding for Lockheed's F-22 fighter jet from the 2010 defense appropriations bill. Yet President Obama has promised to veto the bill if it includes such funding. Congressmen worry that canceling the program will cost jobs in their home districts; the administration counters that the money would be better spent on weapons such as the F-35 Lightning.

Foolish takeaway
And I say ... pot-A-to, po-TAH-to. Heads, Lockheed makes money building the F-22. Tails, it makes money selling more F-35s. Either way, Lockheed wins.

Fool contributor Rich Smith likes some of these stocks so much that "he bought the company." Namely: Boeing, AeroVironment, and Force Protection. The Motley Fool has a disclosure policy.

AeroVironment and iRobot are Motley Fool Rule Breakers recommendations. General Dynamics is a Motley Fool Inside Value selection.