Share This Article

Facebook LinkedIn
Twitter Reddit
Print Email
Pinterest Gmail
Yahoo
Money Morning
×
  • Invest
    • Best Stocks to Buy
    • Stock Forecasts
    • Stocks to Sell Now
    • Stock Market Predictions
    • Technology Stocks
    • Best REITs to Buy Now
    • IPO Stocks
    • Penny Stocks
    • Dividend Stocks
    • Cryptocurrencies
    • Cannabis Investing
    • Angel Investing
  • Trade
    • How to Trade Options
    • Best Trades to Make Now
    • Options Trading Strategies
    • Weekly Trade Recommendations
  • Retire
    • Income Investing Guide
    • Retirement Articles
  • More
    • Money Morning LIVE
    • Special Investing Reports
    • Our ELetters
    • Our Premium Services
    • Videos
    • Meet Our Experts
    • Profit Academy
Login My Member Benefits Archives Research Your Team About Us FAQ
  • Invest
    • Best Stocks to Buy
    • Stock Forecasts
    • Stocks to Sell Now
    • Stock Market Predictions
    • Technology Stocks
    • Best REITs to Buy Now
    • IPO Stocks
    • Penny Stocks
    • Dividend Stocks
    • Cryptocurrencies
    • Cannabis Investing
    • Angel Investing
    ×
  • Trade
    • How to Trade Options
    • Best Trades to Make Now
    • Options Trading Strategies
    • Weekly Trade Recommendations
    ×
  • Retire
    • Income Investing Guide
    • Retirement Articles
    ×
  • More
    • Money Morning LIVE
    • Special Investing Reports
    • Our ELetters
    • Our Premium Services
    • Videos
    • Meet Our Experts
    • Profit Academy
    ×
  • Subscribe
Enter stock ticker or keyword
×
5 Ways to Beat the Fed (and Crush Inflation)
Twitter
Tags: aerospace defense stocks, best defense stocks 2012, defense industry stocks, Defense Stocks, defense stocks 2012, defense stocks etf

Investing in Defense Stocks: Why Lockheed Martin (LMT) Is Too Big to Fail

By GS Early, Contributing Writer, Money Morning

View Comments

Start the conversation

Comment on This Story Click here to cancel reply.

Or to contact Money Morning Customer Service, click here.

Your email address will not be published. Required fields are marked *

Some HTML is OK

Last year when Congress formed its much-lauded "Supercommittee" to sort out America's debt crisis, there was a lot of handwringing about draconian budget cuts.

But true to form, on the eve of an election year, our politicians did nothing and the sequestration clock began to tick.

In essence, they made the bold move to kick the can down the road.

The problem is if the clock is allowed to keep ticking, those same draconian cuts will happen anyway.

No industry is more aware of this than the defense sector.

For them it is literally like turning a battleship - the major players need a lot of lead time to readjust their bearings.

So it's no surprise that the defense sector, which has a budget bigger than the combined defense budgets of at least the next 30 countries in the world, is worried more than most about significant cuts.

And when corporate execs worry, so does Wall Street.

But somehow, I think the military industrial complex will survive. For investors, it will be all about picking the right players.

Investing in Defense Stocks: Lockheed Martin's Big Advantage

One of them is Lockheed Martin (NYSE: LMT).

As the great military strategist Sun Tzu once said, "Opportunities multiply as they are seized."

Today, there is no company better at seizing opportunities than Lockheed Martin.

Sign up for SMS so you never miss special events, exclusive offers, and weekly bonus trades.

Of the $40 billion or so in annual revenue LMT brings in, $36 billion of it is government contracts, with the lion's share being defense contracts.

That proportion is 25% larger than its closest competitors like Boeing (NYSE: BA) and Northrop Grumman (NYSE: NOC). Think of it as the Citibank (NYSE: C) of defense contractors, with all the "too big to fail" implications therein.

Lockheed has become a de facto quasi-governmental agency unto itself.

As such, Lockheed has the ability to go to Congress and ask them to find ways to keep the battleship of defense on the most direct path forward.

Having this kind of influence is highly beneficial for a company, and LMT's stock price has actually been rising since last fall-even under the threat of budget cuts.

In fact, recently Congress quietly passed a bill that would exempt defense programs from the inevitable cuts that would come to pass if sequestration is activated Jan. 2, 2013.

That allows the big contractors like Lockheed to focus on business as usual.

In LMT's case, sales of the next generation F-35 fighters are on schedule, as are the orders for the Navy's Littoral Combat Ships. Its Joint Light Tactical Vehicle (JLTV) is also still in the running to replace the Humvee.

Simply put, air, space, sea or land, LMT has a hand in almost every major defense project in the field and on the drawing board.

Lockheed Martin is Too Big to Fail (LMT)

LMT has also branched out from defense and now works with other federal agencies like the IRS and Postal Service. The company also builds and services sensors and monitoring equipment (i.e. speed cameras and surveillance equipment) for state and municipal governments.

It is a rock solid company with one of the world's best customers as its chief client ... and it pays a nice 4.5% dividend to boot.

What's more, new rules out by Congress are going to help make life even better for LMT.

Here's why.

"Bundling" is the new watchword for government contractors and it has some big implications.

Previously, a small contractor could bid on a small piece of a larger contract where it might have specific expertise. This allowed boutique firms to flourish.

Now, the contracts are all bundled and smaller contractors need to work with the prime contractor for their piece of the work.

From the government's side, this saves a lot of money and time working through all the contract proposals.

But from the small contractor's side, it means they are shut out of big contracts. The smaller players don't have the size to operate as a prime contractor and the prime contractors can squeeze the profit margins of the subcontractors and keep more profits for themselves.

While bundling certainly engenders some pity for the small contractors, for prime contractors like LMT, this is another source of long-term revenue growth if the era of shrinking defense budgets actually occurs.

But I have my doubts.

LMT is a great long-term total return play as the cornerstone of U.S. defense.

Stop worrying and learn to love the military industrial complex.

Related Articles and News:

  • Money Morning:
    Defense Stocks Under Fire From Super Committee Budget Cuts
  • Money Morning:
    This Defense Company has 24% Upside - Even With the Pentagon's Spending Cuts
  • Money Morning:
    This New Spy Technology Could Be Worth Billions
  • Money Morning:
    100 Billion Reasons to Invest in Robotics Technology

Join the conversation. Click here to jump to comments…

Login
guest
guest
4 Comments
Oldest
Newest Most Voted
Inline Feedbacks
View all comments
Joan Carleton
Joan Carleton
11 years ago

We could have done without that last sentence.

0
Reply
Mustafa
Mustafa
11 years ago

This is a terrible recommendation. By buying these defense companies' stock you support the killing and bombing of innocent civilians around the world. America is bankrupting itself by engaging in these useless wars, and all people are concerned about is profit? What about our children and grandchildren? War is inflationary as Ron Paul has stated many times, and history has validated this apohrism enough to make it law. Countries bankrupt themselves when they get involved in unneccessary wars.

0
Reply
WILLIAMS82418
WILLIAMS82418
11 years ago

Excellent review on LMT and it's long term service to our nation. However, LMT is much more than a USA Defense contractor. Many do not realize that more than half of the LMT business since it's origin as an airplane company and then an aerospace company has been non-defense projects. For the benefit of "conscientious objectors to pro-active defense of our nation", it may be helpful to take note that Lockheed programs in design, system engineering, development and ongoing operational support continues to include the NASA programs, begining with the first unmanned Lunar exploration spacecraft, the first Mars and Venus exploration, many, many satellite based communication sytems, that make up our global communication, wireless phone, data process, news and TV systems, Hubble outer space research, servicing spacecraft for International Space Stations, as well as weather satellites and Earth Resource study satellites. In addition, LMT designed and produces deep sea rescue vehicles, and oceanic research ships, and nuclear powered vessels. Furthermore, LMT systems engineers and managers developed the Japan monorail systems and high speed rail transportation systems, also, system engineering for the Shanghai airport project. Also, LMT sytem engineered the huge antennas land based antennas and control stations essential to operate and manage communications and control between earth and and satellites and spacecraft. LMT also developed the initial logic and programming for the intranet search and find library, that Google and Yahoo have explanded into the Internet resource search and marketing resource in use today. This listing is incomplete but it should reveal that is incorrect to view LMT corporation as simply a "Defense contractor". Look in the April issue of Popular Science to view LMT's latest development of energy efficient large transport aircraft.

0
Reply
Steve
Steve
11 years ago

So with all this technology why are we losing wars?

0
Reply


Latest News

June 1, 2023 • By Nick Black

Apple-Broadcom Deal Sets the Stage for U.S. Tech Resurgence and Investment Opportunities

June 1, 2023 • By Garrett Baldwin

This Investor Taught Warren Buffett Everything He Knows - Let's Put Him to Work for Us

June 1, 2023 • By Shah Gilani

earnings
Here's What to Do When the Stock Market's A.I. Hype Fades Out
Trending Stories
ABOUT MONEY MORNING

Money Morning gives you access to a team of market experts with more than 250 years of combined investing experience – for free. Our experts – who have appeared on FOXBusiness, CNBC, NPR, and BloombergTV – deliver daily investing tips and stock picks, provide analysis with actions to take, and answer your biggest market questions. Our goal is to help our millions of e-newsletter subscribers and Moneymorning.com visitors become smarter, more confident investors.

QUICK LINKS
About Us COVID-19 Announcements How Money Morning Works FAQs Contact Us Search Article Archive Forgot Username/Password Archives Profit Academy Research Your Team Videos Text Messaging Terms of Use
FREE NEWSLETTERS
Total Wealth Research Power Profit Trades Profit Takeover Penny Hawk Trading Today Midday Momentum Pump Up the Close
PREMIUM SERVICES
Money Map Press Home Money Map Report Fast Fortune Club Weekly Cash Clock Night Trader Microcurrency Trader Hyperdrive Portfolio Rocket Wealth Initiative Extreme Profit Hunters Profit Revolution Quantum Data Profits Live Trading Alliance Trade The Close Inside Money Trader Expiration Trader Flashpoint Trader Darknet Hyper Momentum Trader Alpha Accelerators Weekly Profit Cycles Brutus Alerts Resource Traders Alliance

Ā© 2023 Money Morning All Rights Reserved. Protected by copyright of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including the world wide web), of content from this webpage, in whole or in part, is strictly prohibited without the express written permission of Money Morning.

Address: 1125 N Charles St. | Baltimore, MD, 21201 | USA | Phone: 888.384.8339 | Disclaimer | Sitemap | Privacy Policy | Whitelist Us | Do Not Sell or Share My Personal Information

wpDiscuz