Lockheed Martin Corp.'s (NYSE: LMT) proposed merger with Aerojet Rocketdyne Holdings Inc. (NYSE: AJRD) was a huge deal that we've been excited about from the start.
Now, the U.S. Federal Trade Commission has sued to block the merger and Lockheed officially terminated its plans as of Sunday.
A setback like that can spell doom for a company's shares, as investors who were expecting to ride the high of a completed merger turn around and sell in large quantities. Sure enough, shares of LMT were trading down about 3% from the week prior as markets closed Tuesday.
But I still recommend this strong defense giant, and I think these fluctuations are destined to be both minor and temporary.
Despite this deal falling through, Lockheed Martin has several great catalysts for its stock: Russian aggression is proving the need for a robust U.S. military, and it stands to benefit from billions of dollars in government-approved funding.
From its recent low on Nov. 2, 2021, just days before the presidential election, through Feb. 10, LMT was up 18% while the S&P 500 was off 2.5%. I expect this is a pattern that's going to continue for some time.
Let me show you why these factors have helped this defense stock crush the broader market...
Rising Challenges Abroad
To put all this in its proper perspective, let's start with a look at growing international tensions that make a strong case for Lockheed Martin as a top defense stock pick.
Russia is continuing to build up troops on the Ukrainian border, and none of the threats from Washington seem to be giving it pause. It's also playing a more complex diplomatic game with NATO allies, as Germany now gets a majority of its natural gas from Russia.
Meanwhile, China sees the challenges in Ukraine as an opportunity to test the Pacific alliance that Biden has been building. In recent weeks, China has stepped up sorties to Taiwan's perimeter. Even North Korea is quietly stepping up its missile testing and contentious rhetoric.
Against this backdrop, U.S. military spending has expanded on a rare bipartisan blowout, with the nearly $780 billion defense authorization act clearing the House in December with a resounding 5-to-1 ratio in support of the nation's fighting forces and defense contractors.
Now, let's talk about where Lockheed Martin fits in all this.
No Deal, No Problem
Not only did Lockheed Martin beat analysts' expectations, but it was the only one of the big U.S. defense contractors to do so. The fact remains that we're talking about one of biggest firms in the world in its field, taking $74.9 billion in prime contracts from the Department of Defense in 2020.
And despite the failure of the merger, Aerojet remains a major partner to Lockheed on its propulsion systems, a relationship that won't be going away anytime soon.
So even without the deal, Lockheed still gets the advantage of using Aerojet's tech in its projects.
The only question that remains, then, is: Does the company still have enough irons in the fire on its own to keep powering its future growth?
The answer is a resounding yes.
Lockheed Has a Full Pipeline
For example, the company just announced in early February that NASA chose it to build the first rocket to send samples back from Mars.
It's a nearly $200 million deal, which isn't huge, but it puts Lockheed's fingers in yet another pie. Now it's found a new way to be a key part of the U.S. space program.
On the military side, it remains a major force to be reckoned with. In December, it announced a $9.5 billion deal to supply Finland with 64 F-35 fighter jets. The reason this is such a big breakthrough is that Finland isn't a part of NATO, so it wasn't pressured into the deal as a counter to Russia. And the contract runs until 2060.
The company also just won a $315 million contract with the U.S. Navy for ongoing support equipment for the Navy's F-35s.
And there's a huge potential deal to build the next-generation tanker for the U.S. Air Force.
The point is, Lockheed Martin is firing on all cylinders. It's not surprising that all these factors have helped light a fire under the stock as the broader market came under pressure.
This is the kind of defense leader that can add to your net worth and is a great hedge against rising geopolitical strife. Grab it now.
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About the Author
Michael A. Robinson is a 36-year Silicon Valley veteran and one of the top tech and biotech financial analysts working today. That's because, as a consultant, senior adviser, and board member for Silicon Valley venture capital firms, Michael enjoys privileged access to pioneering CEOs, scientists, and high-profile players. And he brings this entire world of Silicon Valley "insiders" right to you...
- He was one of five people involved in early meetings for the $160 billion "cloud" computing phenomenon.
- He was there as Lee Iacocca and Roger Smith, the CEOs of Chrysler and GM, led the robotics revolution that saved the U.S. automotive industry.
- As cyber-security was becoming a focus of national security, Michael was with Dave DeWalt, the CEO of McAfee, right before Intel acquired his company for $7.8 billion.
This all means the entire world is constantly seeking Michael's insight.
In addition to being a regular guest and panelist on CNBC and Fox Business, he is also a Pulitzer Prize-nominated writer and reporter. His first book Overdrawn: The Bailout of American Savings warned people about the coming financial collapse - years before the word "bailout" became a household word.
Silicon Valley defense publications vie for his analysis. He's worked for Defense Media Network and Signal Magazine, as well as The New York Times, American Enterprise, and The Wall Street Journal.
And even with decades of experience, Michael believes there has never been a moment in time quite like this.
Right now, medical breakthroughs that once took years to develop are moving at a record speed. And that means we are going to see highly lucrative biotech investment opportunities come in fast and furious.
To help you navigate the historic opportunity in biotech, Michael launched the Bio-Tech Profit Alliance.
His other publications include: Strategic Tech Investor, The Nova-X Report, Bio-Technology Profit Alliance and Nexus-9 Network.