NEW YORK (TheStreet) -- Are economic uncertainties and global instabilities a good thing for defense stocks? Royal Bank of Canada's (RY - Get Report) RBC Capital Markets seems to think so.

This morning, Robert Stallard, an analyst at RBC Capital Markets, division of Royal Bank of Canada, said this in a note to investors:

"With economic uncertainties returning, particularly in Emerging Markets, we think 'defense' defense will continue to appeal, whilst the fundamental driver that is defense spending continues to look better."

Although RCB likes the defense sector right now, it's not too keen on aerospace stocks.

"In contrast to our positive stance on defense, we are increasingly concerned about what the EM fall out could be on aerospace. The broader impact across EM is already being seen. A decline in economic growth coupled with FX issues could call into question the growth plans of airlines in these impacted countries, leading to deferrals, cancellations, and capacity cuts," Stallard wrote.

Here's the list, paired with ratings from TheStreet Ratings for added perspective.

TheStreet Ratings uses a quantitative approach to rating over 4,300 stocks to predict return potential for the next year. The model is both objective, using elements such as volatility of past operating revenues, financial strength, and company cash flows, and subjective, including expected equities market returns, future interest rates, implied industry outlook and forecasted company earnings.

Buying an S&P 500 stock that TheStreet Ratings rated a "buy" yielded a 16.56% return in 2014 beating the S&P 500 Total Return Index by 304 basis points. Buying a Russell 2000 stock that TheStreet Ratings rated a "buy" yielded a 9.5% return in 2014, beating the Russell 2000 index, including dividends reinvested, by 460 basis points last year.

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6. Booz Allen Hamilton Holding Corporation (BAH - Get Report)

Rating: Buy, B
Market Cap: $4 billion
Year-to-date return: 1.4%

Booz Allen Hamilton Holding Corporation provides management consulting, technology, and engineering services to corporations, institutions, not-for-profit organizations, and the U.S. government in defense, intelligence, and civil markets in the United States and internationally.

TheStreet Ratings team rates BOOZ ALLEN HAMILTON HLDG CP as a Buy with a ratings score of B. TheStreet Ratings Team has this to say about their recommendation:

"We rate BOOZ ALLEN HAMILTON HLDG CP (BAH) a BUY. This is driven by a number of strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its revenue growth, notable return on equity and solid stock price performance. We feel its strengths outweigh the fact that the company shows low profit margins."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The revenue growth came in higher than the industry average of 21.7%. Since the same quarter one year prior, revenues slightly increased by 2.2%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • Current return on equity exceeded its ROE from the same quarter one year prior. This is a clear sign of strength within the company. Compared to other companies in the IT Services industry and the overall market, BOOZ ALLEN HAMILTON HLDG CP's return on equity significantly exceeds that of both the industry average and the S&P 500.
  • Looking at where the stock is today compared to one year ago, we find that it is not only higher, but it has also clearly outperformed the rise in the S&P 500 over the same period, despite the company's weak earnings results. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
  • BOOZ ALLEN HAMILTON HLDG CP's earnings per share declined by 8.5% in the most recent quarter compared to the same quarter a year ago. Stable earnings per share over the past year indicate the company has sound management over its earnings and share float. We anticipate these figures will begin to experience more growth in the coming year. During the past fiscal year, BOOZ ALLEN HAMILTON HLDG CP reported lower earnings of $1.53 versus $1.54 in the prior year. This year, the market expects an improvement in earnings ($1.65 versus $1.53).
  • The change in net income from the same quarter one year ago has exceeded that of the S&P 500 and the IT Services industry average. The net income has decreased by 9.6% when compared to the same quarter one year ago, dropping from $71.12 million to $64.31 million.
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5. Northrop Grumman Corporation (NOC)

Rating: Buy, B
Market Cap: $31 billion
Year-to-date return: 12.9%

Northrop Grumman Corporation, a security company, provides systems, products, and solutions in aerospace, electronics, information systems, and technical service areas to government and commercial customers worldwide.

TheStreet Ratings team rates NORTHROP GRUMMAN CORP as a Buy with a ratings score of B. TheStreet Ratings Team has this to say about their recommendation:

"We rate NORTHROP GRUMMAN CORP (NOC) a BUY. This is driven by a few notable strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its solid stock price performance, increase in net income, reasonable valuation levels, good cash flow from operations and notable return on equity. We feel its strengths outweigh the fact that the company shows low profit margins."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • Investors have apparently begun to recognize positive factors similar to those we have mentioned in this report, including earnings growth. This has helped drive up the company's shares by a sharp 30.91% over the past year, a rise that has exceeded that of the S&P 500 Index. Regarding the stock's future course, although almost any stock can fall in a broad market decline, NOC should continue to move higher despite the fact that it has already enjoyed a very nice gain in the past year.
  • The net income growth from the same quarter one year ago has exceeded that of the S&P 500 and the Aerospace & Defense industry average. The net income increased by 3.9% when compared to the same quarter one year prior, going from $511.00 million to $531.00 million.
  • The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. In comparison to other companies in the Aerospace & Defense industry and the overall market on the basis of return on equity, NORTHROP GRUMMAN CORP has underperformed in comparison with the industry average, but has greatly exceeded that of the S&P 500.
  • Net operating cash flow has slightly increased to $626.00 million or 9.44% when compared to the same quarter last year. Despite an increase in cash flow, NORTHROP GRUMMAN CORP's cash flow growth rate is still lower than the industry average growth rate of 25.90%.
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4. Rockwell Collins, Inc. (COL)

Rating: Buy, A-
Market Cap: $11 billion
Year-to-date return: -2.9%

Rockwell Collins, Inc. designs, produces, and supports communications and aviation systems for commercial and military customers worldwide. The company operates through three segments: Commercial Systems, Government Systems, and Information Management Services.

TheStreet Ratings team rates ROCKWELL COLLINS INC as a Buy with a ratings score of A-. TheStreet Ratings Team has this to say about their recommendation:

"We rate ROCKWELL COLLINS INC (COL) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its solid stock price performance, increase in net income, revenue growth, expanding profit margins and good cash flow from operations. We feel its strengths outweigh the fact that the company has had generally high debt management risk by most measures that we evaluated."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The stock has not only risen over the past year, it has done so at a faster pace than the S&P 500, reflecting the earnings growth and other positive factors similar to those we have cited here. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Aerospace & Defense industry. The net income increased by 12.7% when compared to the same quarter one year prior, going from $158.00 million to $178.00 million.
  • Despite its growing revenue, the company underperformed as compared with the industry average of 4.8%. Since the same quarter one year prior, revenues slightly increased by 2.3%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • 40.06% is the gross profit margin for ROCKWELL COLLINS INC which we consider to be strong. It has increased from the same quarter the previous year. Along with this, the net profit margin of 13.76% is above that of the industry average.
  • Net operating cash flow has increased to $209.00 million or 20.11% when compared to the same quarter last year. Despite an increase in cash flow, ROCKWELL COLLINS INC's average is still marginally south of the industry average growth rate of 25.90%.
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3. Raytheon Company (RTN - Get Report)

Rating: Buy, A-
Market Cap: $31 billion
Year-to-date return: -3.2%

Raytheon Company develops integrated products, services, and solutions in the areas of sensing; effects; command, control, communications, and intelligence; mission support; and cyber and information security worldwide.

TheStreet Ratings team rates RAYTHEON CO as a Buy with a ratings score of A-. TheStreet Ratings Team has this to say about their recommendation:

"We rate RAYTHEON CO (RTN) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its solid stock price performance, revenue growth, largely solid financial position with reasonable debt levels by most measures, reasonable valuation levels and good cash flow from operations. We feel its strengths outweigh the fact that the company shows low profit margins."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The stock has not only risen over the past year, it has done so at a faster pace than the S&P 500, reflecting the earnings growth and other positive factors similar to those we have cited here. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
  • Despite its growing revenue, the company underperformed as compared with the industry average of 4.8%. Since the same quarter one year prior, revenues slightly increased by 2.6%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • The current debt-to-equity ratio, 0.53, is low and is below the industry average, implying that there has been successful management of debt levels.
  • Net operating cash flow has significantly increased by 114.85% to $376.00 million when compared to the same quarter last year. In addition, RAYTHEON CO has also vastly surpassed the industry average cash flow growth rate of 25.90%.
HXL Chart HXL data by YCharts
2. Hexcel Corporation (HXL - Get Report)

Rating: Buy, A
Market Cap: $31 billion
Year-to-date return: 16.2%

Hexcel Corporation, together with its subsidiaries, develops, manufactures, and markets structural materials for use in commercial aerospace, space and defense, and industrial markets in the United States and internationally.

TheStreet Ratings team rates HEXCEL CORP as a Buy with a ratings score of A. TheStreet Ratings Team has this to say about their recommendation:

"We rate HEXCEL CORP (HXL) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its impressive record of earnings per share growth, compelling growth in net income, revenue growth, largely solid financial position with reasonable debt levels by most measures and notable return on equity. We feel its strengths outweigh the fact that the company shows weak operating cash flow."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • HEXCEL CORP has improved earnings per share by 23.5% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, HEXCEL CORP increased its bottom line by earning $2.12 versus $1.85 in the prior year. This year, the market expects an improvement in earnings ($2.40 versus $2.12).
  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Aerospace & Defense industry. The net income increased by 21.9% when compared to the same quarter one year prior, going from $50.60 million to $61.70 million.
  • Despite its growing revenue, the company underperformed as compared with the industry average of 4.8%. Since the same quarter one year prior, revenues slightly increased by 1.2%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • The current debt-to-equity ratio, 0.41, is low and is below the industry average, implying that there has been successful management of debt levels. Along with the favorable debt-to-equity ratio, the company maintains an adequate quick ratio of 1.14, which illustrates the ability to avoid short-term cash problems.
  • The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. Compared to other companies in the Aerospace & Defense industry and the overall market on the basis of return on equity, HEXCEL CORP has underperformed in comparison with the industry average, but has exceeded that of the S&P 500.
GD Chart GD data by YCharts
1. General Dynamics Corporation (GD - Get Report)

Rating: Buy, A
Market Cap: $47 billion
Year-to-date return: 5%

General Dynamics Corporation operates as aerospace and defense company worldwide. It operates through four business groups: Aerospace; Combat Systems; Information Systems and Technology; and Marine Systems.

TheStreet Ratings team rates GENERAL DYNAMICS CORP as a Buy with a ratings score of A. TheStreet Ratings Team has this to say about their recommendation:

"We rate GENERAL DYNAMICS CORP (GD) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its revenue growth, solid stock price performance, impressive record of earnings per share growth, compelling growth in net income and reasonable valuation levels. We feel its strengths outweigh the fact that the company shows weak operating cash flow."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • GD's revenue growth has slightly outpaced the industry average of 4.8%. Since the same quarter one year prior, revenues slightly increased by 5.5%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • The stock has not only risen over the past year, it has done so at a faster pace than the S&P 500, reflecting the earnings growth and other positive factors similar to those we have cited here. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
  • GENERAL DYNAMICS CORP has improved earnings per share by 20.7% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, GENERAL DYNAMICS CORP increased its bottom line by earning $7.83 versus $7.03 in the prior year. This year, the market expects an improvement in earnings ($8.83 versus $7.83).
  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Aerospace & Defense industry. The net income increased by 39.0% when compared to the same quarter one year prior, rising from $541.00 million to $752.00 million.