NEW YORK (CNN/MONEY) - One of the investment advisory services I most respect is the Leuthold Group, which provides sophisticated market analysis to institutions. Leuthold recently upgraded defense stocks, and so I decided to take a fresh look at the group.

I've long had two defense contractors on the Sivy 70 list, General Dynamics and Northrop Grumman. In addition, Lockheed Martin and Raytheon are usually included among the majors in the group.

The big four are showing very solid earnings momentum. All four beat analysts' consensus estimates in the most recent quarter, and all but Raytheon posted earnings gains of more than 20 percent. Raytheon's results were obscured by several nonrecurring expenses.

There are several reasons the group looks timely. The first, of course, is Iraq. Investors always tend to think that defense stocks perform strongly during a war. But actually, the stocks often do best in the aftermath of a conflict, because equipment that has been used up has to be replaced.

Even if few planes or tanks have been destroyed, the cost of servicing all the equipment is staggering. And that doesn't even count replacing all the ammunition and missiles. In addition, the military discovers in actual battle which systems work -- and which need to be redesigned.

Military spending already authorized is projected to rise until 2006. And many analysts expect continuing outlays, whichever candidate is elected president.

A Kerry administration might spend a bit less overall than the current administration. But President Bush and Secretary of Defense Rumsfeld have favored high-tech defense equipment. Kerry, by contrast, has proposed shoring up more traditional capabilities.

Big, old-line defense contractors would probably fare well in either case.

The group provides valuable diversification for two reasons.

First, defense companies are on a different cycle from most industrial stocks. Their revenues are dependent on defense spending rather than the level of general business activity.

In addition, any external shock, such as a terrorist attack, that would likely depress most stocks would probably cause an offsetting rally among defense issues.

Of the big four, General Dynamics and Northrop Grumman look most attractive on a valuation basis.

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General Dynamics has major businesses producing traditional military hardware, including tanks and submarines. The company also gets more than one-third of its revenues from sophisticated information technology and battlefield communications, businesses that are growing considerably faster than hardware. In addition, the business jet division Gulfstream is seeing an upturn in demand. Earnings are projected to grow at a 12 percent compound annual rate over the next five years, and the stock yields 1.5 percent. At $95.63 a share, General Dynamics (GD: Research, Estimates) trades at less than 15 times 2005 earnings.

Northrop Grumman has a similar profile, making nuclear-powered aircraft carriers and submarines, as well as the Stealth bomber. The company also offers command, control and intelligence systems, as well as missile systems. Growth is projected at 12 percent and the stock yields 1.8 percent. At $51.48 a share, Northrop (NOC: Research, Estimates) trades at less than 15 times 2005 results.

At $34.41 a share, Raytheon (RTN: Research, Estimates) trades at almost 19 times projected earnings for 2005, while Lockheed Martin (LMT: Research, Estimates) at $54.10 trades at a price/earnings ratio of almost 17 times 2005 results.

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