U.S. Air Force F-16 Fighting Falcon aircraft assigned to the Thunderbirds perform aerial maneuvers on Aug. 3, 2014. Tech. Sgt. Chris Hibben | U.S. Air Force

WASHINGTON — Geopolitical uncertainty coupled with a colossal uptick in U.S. military spending could make defense stocks a winning trade once again in 2020. Under the Trump administration, the space has left the broader stock market in the dust. The iShares U.S. Aerospace & Defense exchange-traded fund (ITA) has rallied more than 70% since Nov. 8, 2016. The S&P 500, meanwhile, is up around 50% in that time. This year has been no different. The ITA ETF has surged more than 30% in 2019 while the S&P 500 has gained around 27%. Also, a historic boost to the U.S. defense budget should be a boon for defense stocks in 2020. The Pentagon's spending power has never been larger at a cool $738 billion, up from $717 billion in 2019.

The rise in defense spending comes as the Trump administration has pulled the United States back from global commitments and pushed forward on ambitious projects like the denuclearization of North Korea, rising tensions with Iran, a bitter trade war with China and an ongoing effort to negotiate the end of the U.S. war in Afghanistan. "Global attention is directed toward the US and China but the Gulf is more dangerous for the world," said Neil Dwane, global strategist at AllianzGi. "Any escalation in the Middle East can become a full crisis as the effects ripple through the region."

2020 election overhype

Presidential candidates Sen. Elizabeth Warren, former vice president Joe Biden and Sen. Bernie Sanders during the Democratic presidential debate on November 20, 2019, in Atlanta, Georgia. Toni L. Sandys | The Washington Post | Getty Images

Despite sharp gains, analysts think valuations for defense stocks remain attractive as investors overestimate the impact a more left-leaning presidency could have on the sector. "Although the 2020 elections remain an overhang on Defense stocks, we think the risks are way overstated and have hampered Defense multiples from expanding despite continued end-market growth," said Buckingham Research Group analyst Richard Safran in a note. Democratic presidential hopefuls Elizabeth Warren and Bernie Sanders have both spoken out against the $21billion increase to the Pentagon's 2020 budget. In a tweet, Warren said: "The Pentagon's budget has been too large for too long. I cannot support a defense bill that's a $738 billion Christmas present to giant defense contractors & undermines our values and security." tweet Sanders, meanwhile, said earlier this month in a joint statement with congressman Rohit Khanna, D-Penn., the bill was of "astonishing moral cowardice." "It's a widely held view (and we think an overhang on Defense) that the leading Democratic progressive candidates (Warren and Sanders) would likely slash Defense budgets," Buckingham's Safran noted. However, he also pointed out that President Donald Trump would likely preside over the fiscal 2021 defense budget, meaning Warren or Sanders would not influence the budget immediately after taking office.

Not cheap, but not expensive

A naval aviator with Marine Fighter Attack Training Squadron 501 flies an F-35 above North Carolina during aerial refueling training on April 14, 2015. Cpl. Unique Roberts | U.S. Marine Corps