NEW YORK (CNN/MONEY) - Defense stocks rallied to all-time highs after George Bush was re-elected. But the positive outlook for the group isn't just the result of his victory.

In fact, defense spending would probably keep rising no matter which candidate had won the presidency. The two major candidates might have spent the money differently, but since Sept. 11th U.S. defense expenditures have been climbing steadily.

Bush's re-election will help fuel that trend, of course. Since he took office, overall defense spending has increased by $100 billion to more than $400 billion.

Even if Bush is more restrained in his second term, billions more will be needed just to replace material that has been used up in Iraq and to upgrade American forces for 21st Century combat. Overall, defense spending could rise another 17 percent by 2009.

As a result, the dominant companies in the sector have posted double-digit gains over the past year. And the comprehensive SPADE Defense Index, which began trading publicly as an ETF in July, is up 60 percent since January 2002.

Analysts caution that investors could overestimate the near-term opportunities for defense. The likely rate of gain in Bush's second term may be less than the sector has enjoyed over the past three years.

So it's important to be value conscious and look for stocks trading at less than 17 times projected earnings for 2005. Despite its strong fundamentals, for instance, Raytheon may be too pricey at a P/E of more than 20.

Three of the companies on the Sivy 70 list -- General Dynamics, Northrop Grumman and United Technologies -- offer the combination of attractive total return potential and moderate valuations.

Here's a quick look at the three of them.

General Dynamics (Research), which makes jets, ships and intelligence systems, has been a strong performer over the past year, gaining more than 30 percent to $108 a share. Earnings were up 23 percent in the most recent quarter on a 7.5 percent gain in sales.

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Although results improved at most of the company's divisions, the biggest gains came from Gulfstream, where operating earnings more than doubled, thanks to an upswing in demand for business jets.

The company expects an equally strong fourth quarter. Analysts are projecting an 11 percent earnings gain in 2005 and similar annual increases over the next five years. The shares also yield 1.3 percent.

Nonetheless, analysts think most of the good news is already reflected in the share price and don't see a lot of additional upside.

Northrop Grumman (Research), which makes command and control systems, ships and space technology, gets a slightly higher rating.

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At $55, the stock is up more than 20 percent over the past year. For the most recent quarter, earnings soared 51 percent on an 11 percent increase in sales.

The company has slightly raised guidance for the fourth quarter and expects further gains in 2005. Northrop has also announced a $1 billion stock buyback over the next 12 to 18 months.

Earnings are projected to grow 16 percent in 2005 and increase at a double-digit annual rate over the next five years. The shares yield 1.6 percent.

United Technologies (Research), a conglomerate with a sizable exposure to aerospace, also looks like an attractive value. At $98, the stock is up only 12 percent over the past year. For the most recent quarter, the company posted a 13 percent earnings gain on a 17 percent increase in sales.

A continuing recovery in aerospace helped lift United Technologies' results. The company owns the Pratt & Whitney aircraft engine business, Sikorsky helicopters and Hamilton Sunstrand, maker of a variety of products and systems used on aircraft.

United Technologies also owns several industrial businesses, including air conditioning and electronic security, as well as Otis elevators, which was a big contributor to recent quarterly results. Earnings are likely to track the overall economy, which would be beneficial if the recovery picks up again.

Double-digit earnings growth is projected for 2005 and thereafter. The shares also yield 1.4 percent. But the real appeal of United Technologies is its robust cash flow, which has always made the stock a favorite of value-conscious investors.

Michael Sivy is an editor-at-large for MONEY magazine. Click here to receive Sivy on Stocks via e-mail every Monday.