Honestly, I was a little shocked when this stock hit my technical buy list today.
The stock hits all the marks of my “behavioral valuation” checklist that says it’s set to move higher over the next 6-12 months, but it appears that The Street hasn’t figured the trade out yet.
Let’s go through the basics, and then let’s talk about how to trade the long-term trend.
Lockheed Martin
I bet as soon as you saw the name you had to think “CJ, that trade has got to be so crowded it’s not funny.” You’d be wrong.
Let’s hit all three of the components of my Behavioral Valuation approach, so you’ll see the whole picture on Lockheed Martin (LMT).
Fundamentals - BULLISH
Just do a quick “Walk Down Main Street” on Lockheed Martin by watching the news. It’s a sad state, but conflict is good for LMT’s stock. And with conflicts heating up all over the world, the company is sure to stay busy for the next five years.
The Biden Administration just submitted the 2025 budget to Congress including a $34 billion increase in defense spending. The U.S. spends more on its defense than the next nine largest countries, a number that is going to get larger over the next few years.
Last quarter’s earnings and revenue results showed a recovery in the operations of Lockheed Marten as revenue grew 14% for the year, the best revenue growth in more than five years. The company reaffirmed revenue and earnings guidance for the next quarter.
The shift in the company’s revenue and earnings guidance points to a longer-term turnaround after more than two years of struggle. Lockheed Martin started a declining revenue and earnings period when they warned in July 2022 that operations had slowed.
From a fundamental perspective, Lockheed Martin is a bull.
Sentiment – BULLISH
Sentiment is the most unique component of my Behavioral Valuation approach.
Gauging investors’ sentiment on a stock, exchange-traded fund (ETF), or the market is key in determining whether a trend is in its early or late stages. Overly optimistic or greedy sentiment almost always happens at the top for the market or a stock. Fearful or pessimistic sentiment is almost always associated with a bottom.
Lockheed Martin sits at neither - simply put, Wall Street is a “Hold” on the stock.
Current analyst recommendations for LMT stock show that 62% of the 24 analysts covering the stock have it ranked a “Hold.”
Analyst recommendations on the stock dropped to their lowest in five years in January 2023 as the company was still working through the fundamental problems resulting in lower revenue and earnings.
Now with that trend reversed, I expect that we will see a shift as analyst’s begin to improve their outlook. That trend will increase the number of upgrades and higher price targets, all of which are drivers for higher prices.
Looking at the company’s short interest, shorts have been more active on the stock over the last four months.
Higher short interest on a stock is another sign that the market has a pessimistic outlook for a stock. That’s something we love to see on a stock with bullish technicals – coming up next – and fundamentals as it means that the shorts will have to start covering their positions soon.
IIrronically, covering those short positions involves turning into a buyer of the stock that you had been hoping would fall. One of Wall Street’s little cruel jokes on the bears.
Both short interest and the current recommendations from the analyst community suggest that sentiment is bearish to neutral on LMT shares, which is BULLISH for you and me.
Technicals - BULLISH
Lockheed Martin’s technical picture is bullish and about to get better.
Shares of LMT trade above their short- and intermediate-term trendlines, indicating strong price momentum.
Within the last ten days, LMT’s 50-day moving average crossed above its longer-term 200-day trendline forming a Golden Cross formation. These technical formations suggest that a stock is accelerating to higher prices.
At the same time, LMT shares recently moved above their long-term 20-month moving average. This returns the stock to a long-term bull market trend as it moved above $450.
Furthermore, the stock is setting up for a move above $500, which would put shares into new all-time high readings.
Here’s where the sentiment comes in to accelerate things higher. With a move above $500, LMT shares will take out the average analyst’s target price and post new highs. That type of pressure causes the analyst community to review their stance on the stock and issue upgrades… driving the price even higher.
Bottom Line
From my Behavioral Valuation approach, shares of Lockheed Marting are bullish with a price target of $550 over the next 6-12 months. That move equates to roughly 20% higher than LMT’s current prices.
Here’s how to trade it:
- Consider the purchase or addition of LMT to your portfolio using the current price of $550 as a price target.
- Given the high price of the stock, I consider an option alternative to benefit from the stock’s trending price.
- The January 16, 2026 $500 LEAPs are offered at $4,300 and allow you to control 100 shares of stock as they move in-the-money. This approach allows you to benefit from the trend as well as leverage from the option contract.
About the Author
Chris Johnson (“CJ”), a seasoned equity and options analyst with nearly 30 years of experience, is celebrated for his quantitative expertise in quantifying investors’ sentiment to navigate Wall Street with a deeply rooted technical and contrarian trading style.