It's earnings season again on Wall Street, folks, and you know what that means.

For the next several weeks, headlines will be dominated by earnings news -- Google's (NASDAQ:GOOG) $2 billion quarter, Citigroup's (NYSE:C) tremendous fourth-quarter loss, and whatever stories grab readers' attention this week.

But beneath the headlines, down in the nitty-gritty depths that the momentum traders are too busy trading to plumb, a new story is emerging: Defense is back!


Starting Price*

Recent Price

Total Return

General Dynamics (NYSE:GD)




Raytheon (NYSE:RTN)




Lockheed Martin (NYSE:LMT)












Force Protection








S&P Spyder








Source: Yahoo! Finance.
*Tracking began on July 10, 2009. Portfolio is equal-weighted, with "recent price" being set at market close on the Friday preceding publication, and adjusted for stock splits and dividends.

Yes, Fools, it seems almost too good to be true. Yet after months of lagging a market seemingly obsessed with a flight to garbage, the high-quality, low-price, steady executors who make up our Defense Portfolio are roaring back toward parity.

What's behind this story? That's today's story.

Read behind the headlines
While the rest of the market was busy reading earnings reports and crunching forward estimates, our Defense Portfolio spent its time getting down to business. Last week, we saw Boeing's (NYSE:BA) fortunes lift when archrival EADS got its tailfeathers burned in a budgetary dogfight. And further good news is still in the wind, as investors wait with bated breath for the Pentagon to release its official RFP on the KC-X.

Meanwhile, President Obama did his darnedest to make me look like a genius for predicting we'd see Mideast arms sales produce beaucoup bucks for defense contractors. Turns out, his $33 billion appropriations bill for the war in Afghanistan includes billions in funding going directly to some of the nation's top (legal) arms dealers, including $486 million for Raytheon targeting and surveillance systems, $445 million to pay General D to upgrade Stryker combat vehicles, more than $350 million to upgrade various attack and transport helicopters manufactured by Boeing, and so forth and so on and on and on …

Is Lockheed Martin doomed?
Of course, it wasn't all good news for the military-industrial complex last week. On Thursday, Deputy Secretary of Defense William Lynn confirmed that the Pentagon currently expects to request funding for 10 fewer Lockheed F-35 fighter jets in 2011, than previously planned; (42 planes total, with $10.7 billion in funds allocated). Lynn explained the change in plans in typical Pentagon gibberish-speak: "adjusted F-35 procurement quantities based on new data on costs and on likely orders from our foreign nations partners and realigned development and test schedules" require the cuts, he says.

In so doing, Lynn appears to have proven Goldman Sachs (NYSE:GS) right. The F-35 program does face "major challenges." Lockheed really is "platform-exposed," and headed for a tumble. So is it time to cut our losses, and sell out?

Time to dust off your binoculars, Goldman
Hardly. I know I'm risking ASPCA sanctions for continuing to beat this here dead horse, but I just have to give it one last kick today: When Goldman focuses on the 2011 budget request, and hangs its "conviction sell" rating on one year's numbers, it's suffering from a serious case of short-term-think.

Lest we forget, the F-35 is a 60-year fighter program. Designed to upgrade and replace as many as a dozen existing fighter-bomber variants, F-35 could well prove to be the last major manned fighter jet program ever designed. One valued in excess of $1 trillion over its lifetime. Viewed in this context, 10 planes' impact on one year's revenues don't add up to even so much as a rounding error. They're an out and out irrelevancy.

But heck, if the doubters want to leverage their pessimism to give the rest of us a better buy-in price for Lockheed stock, I won't argue. I'll just say "thank you."

And good night.

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Fool contributor Rich Smith does not currently own any stocks named above. General Dynamics is a Motley Fool Inside Value recommendation and Google is a Motley Fool Rule Breakers pick. The Motley Fool has a disclosure policy.