Needless to say, the defense and aerospace sector has been red-hot since the election of Donald Trump back in November. Toss in the uncertainty in the Middle East and on the Korean peninsula, and you have all the ingredients in place for the sector to continue to draw investor interest. With the defense sector up nearly 8% this year, versus the S&P 500’s 5.5%, it makes sense to stick with the leaders.

In a new Deutsche Bank research report, outstanding analyst Myles Walton makes the case that Wall Street in general remains more positive on the defense stocks, and overall more neutral on commercial aerospace companies. The analyst likes three top stock picks from both areas into the first-quarter earnings, and all are rated Buy at Deutsche Bank.

Lockheed Martin

This is a top aerospace and defense stock to buy, and many on Wall Street are expecting a very solid continuation of U.S. and foreign defense spending. Lockheed Martin Corp. (NYSE: LMT) researches, designs, develops, manufactures, integrates, operates and sustains advanced technology systems, products and services. It also provides a wide range of defense electronics products and IT services.

Being the Pentagon’s prime contractor, Lockheed Martin offers a diverse portfolio of global aerospace, defense, security and advanced technologies. Its leveraged presence in the Army, Air Force, Navy and IT programs guarantees a steady inflow of follow-on orders, not only from the U.S. government but also from a large number of foreign allies of the nation.

The company recently secured a contract for providing flight-line spare parts. Valued at $750 million, this is a five-year base contract with a three-year and a two-year option period. Lockheed Martin will complete work under this agreement utilizing fiscal 2017 through 2022 defense working capital funds and expects to finish the project by March 31, 2022.

Shareholders are paid a very solid 2.71% dividend. The Deutsche Bank price objective for the stock is $295, while the Wall Street consensus target price is $282.68. The shares closed trading on Tuesday at $270.27.

Rockwell Collins

The Deutsche Bank analyst is very positive going into earnings and cites the closure of the B/E Aerospace deal as a catalyst. Rockwell Collins Inc. (NYSE: COL) is a leader in providing design, production, integration and support of communications and aviation electronics for military and commercial customers worldwide. The company’s products include avionics suites for business and commercial aircraft, radios, GPS navigation and IFE systems.

Rockwell Collins agreed last fall to pay $6.4 billion to buy B/E Aerospace in a deal that will unite two of the biggest suppliers to airlines and plane makers. The arbitrage accounts that were long B/E and short Rockwell should be clearing those positions with the deal expected to close soon.

Shareholders are paid a 1.33% dividend. Deutsche Bank has a price target of $115, and the consensus target is $104.35. The stock closed Tuesday at $99.35.

Transdigm

This company was hitting our insider buying screens in a big way earlier this year. Transdigm Group Inc. (NYSE: TDG) is a holding company for different businesses that provide a diverse array of products including ignition systems, pumps, valves, motors, actuators, controls, water faucets and systems, quick disconnects and couplings, batteries, chargers and power conditioning, cockpit security systems, composites and elastomers, audio systems and lighting and displays.

The analyst notes that the stock has been under siege recently, and said this in the report:

While Transdigm remains a highly charged stock following a steady barrage of short reports, we like the name and particularly the valuation following the most recent leg down. Bookings trends last quarter should be enough to lift aftermarket growth despite tough comps, and short covering into results will likely also help the stock in the near-term.

The Deutsche Bank price target is a sky-high $305. The consensus target is $287.94, and the stock closed Tuesday at $234.01.

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With the White House pledge to rebuild the military, and global sales remaining strong, the sector remains a solid space to stay weighted in. These three companies could take off on good earnings, and the added catalysts may provide additional fuel for the fire.

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