NEW YORK ( TheStreet) -- Defense and security-related stocks are raking in gains for investors. Stocks like Lockheed Martin ( LMT), Raytheon ( RTN) and L-3 Communications ( LLL) have delivered returns of 5% to 11% over the week ended Friday. Other stocks like General Dynamics ( GD), FLIR Systems ( FLIR) and American Science and Engineering ( ASEI) may offer upside in the upcoming days.

The stocks rose last week after the U.S. government announced cuts in defense spending that weren't as deep as predicted. The U.S. decided to slash around $80 billion in defense spending, including a cutback of up to 50,000 troops over the next five years.

Recent statement from the U.S. government indicate growing uneasiness about China's military clout, which could trigger a restart of some advanced projects that were kept on hold. This could unlock avenues in research and development. The opening up of big defense markets like India and Saudi Arabia also is positive news for U.S. defense companies.

The companies listed here are trading at an average of 10 to 15 times their earnings, and at a discount to their historical average of 15 to 20 times. The stocks are stacked in terms of percentage buy ratings, great to greatest.

6. Lockheed Martin is a global defense company engaged in aeronautics, information and electronic systems.

Net sales were up 6% to $11.4 billion during the third quarter. The aeronautics segment, which contributes around 30% toward revenue, grew 10% year over year during the September quarter.

Following the earnings, Robert Stevens, Lockheed chairman and CEO, said, "In addition, we agreed with the government on price for the fourth production lot of F-35 aircraft, and we were notified that Israel signed a Letter of Offer and Acceptance for the procurement of the F-35 as the Israeli Air Force's next-generation fighter aircraft."

Joseph Nadol, analyst at JPMorgan, observed, "Earnings per share of $1.55 beat our estimate by 3 cents, including 2 cents from operations. Most of the upside was in electronics, and aeronautics and space EBIT were modestly above expectations as well. " Nadol pegs 2011 top-line growth at around 3.7% with an operating margin of 10.7%. The stock is trading at six to seven times its 2011 earnings.

5. L-3 Communications is a security contractor with operations spanning across command, control, communications, intelligence, surveillance and reconnaissance (CCCISR), aircraft modernization and maintenance (AM&M), government services and electronic systems.

Consolidated net sales for the third quarter of 2010 were flat at $3.8 billion, relative to the same quarter last year. The AM&M segment reported a 4.8% drop in sales, offsetting the 7.5% increase in CCCISR sales.

Reviewing the quarter, Michael T Strianese, L-3 president and CEO, said, "Despite softer-than-expected sales, our Intelligence, Surveillance, and Reconnaissance businesses continued to see robust demand and we were able to expand margins and generate strong cash flow." Operating margins improved by 50 basis points to 11.4%.

Net cash was $395 million for the quarter. Acquisitions during the quarter included a couple of companies in unmanned systems and satellite communications space worth $93 million. The stock is trading at 11 to 12 times its estimated 2011 earnings.

4. Raytheon engages in providing defense-related products and services. The company addresses the U.S. and international markets, offering integrated defense systems (IDS), missile systems, space airborne systems (SAS), and intelligence and information systems (IIS).

Earnings per share for the third quarter zoomed 9% to $1.36, driven by operational efficiency. Operating margins improved 60 basis points from the year-earlier quarter to 12.9%.

Reviewing the results, Raytheon's CEO William H. Swanson said, "Strong program performance and cost-reduction activities drove operating margins and earnings for the quarter." However, third-quarter net sales came in flat at $6.3 billion, compared to $6.2 billion during the same quarter last year. Revenue and operating income from SAS and technical services segments scaled up 10% and 20%, respectively. In comparison, IIS and IDS were lackluster. The stock is trading at seven to eight times its 2011 earnings.

3. American Science and Engineering is a U.S.-based supplier of X-ray inspection and other detection solutions, with a global customer base.

The company reported revenue growth of 32% year over year to $80.1 million in the September quarter. Net income rose 37% to $14.7 million, ensuring earnings per share of $1.59 for the quarter.

Order backlog as of September 2010 rose 36% to $254 million. The company declared a cash dividend of 30 cents a share.

Revenue and net income during the last two quarters grew 16% and 19%, respectively. Michael Kim, analyst at Imperial Capital, increased the estimates and valuation range for 2011 earnings after the September quarter. The stock is trading at five to six times its estimated 2011 earnings.

2. FLIR Systems designs and manufactures thermal imaging systems and operates through divisions like thermography and commercial vision systems.

Revenue for the third quarter rose 16% to $333 million. Operating margins dipped, while net income was up 5% to $63 million.

Although FLIR derives about one-third of its revenue from the U.S., it is trying to diversify its revenue sources by gaining traction in other geographies. The company built an operation center in Riyadh during the third quarter, eyeing to capture a part of the proposed $60 billion arms deal announced between the U.S. and Saudi Arabia.

Based on third-quarter results, the outlook for revenue and earnings per share for 2010 has improved. Revenue and net earnings per share for 2010 are pegged at $1.375 billion to $1.4 billion and $1.53 to $1.56, respectively. Order backlog stands at $533 million, with delivery scheduled within the next 12 months. The stock is trading at 10 to 11 times its 2011 earnings.

1. General Dynamics is a prime contractor of defense-related products and services, addressing segments like aerospace, marine and combat systems, serving both domestic and international customers.

During the third quarter, General Dynamics' revenue rose 3.8% year over year. Revenue from aerospace jumped 15.3% on higher volumes from aircraft manufacturing, while higher U.S. navy ship programs saw the marine systems segment churn out a revenue run rate of 12% during the quarter. Revenue from combat systems wasn't impressive.

Operating margins improved by 80 basis points, compared to the same period last year. Aerospace and combat systems contributed chiefly toward operating margins, while returns from marine systems and technology segments dampened. Overall, operating earnings grew 10% during the quarter, riding on the efforts to downsize operating costs and general and administration expenses. Order backlog in respect of contracts at the end of the third quarter was around $60 billion. The stock is trading at six to seven times its 2011 earnings.

>To see these stocks in action, visit the 6 Defense Picks for Diversification portfolio on Stockpickr.
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