This Could Be a Big Catalyst for LMT Stock
Lockheed Martin Corporation (NYSE:LMT) hit above $227.00, moving above the $220.00 range as it reaches for new heights. LMT stock is well placed to go higher, easily topping $250.00 in a much more complex and tense international context following the downing of a Russian “Sukhoi Su-24” fighter jet in Syria by a Turkish “F-16” (a Lockheed Martin aircraft).
Lockheed Martin stock has traded consistently around its five-year high, relying on its visibility as one of the largest defense contractors in the world in the wake of geopolitical and international tensions due to the ever more insidious actions by the Islamic State and as NATO power governments look for ways to address the risk.
Lockheed Martin is poised to benefit from the escalation of raids over Syria and Iraq, planned by the NATO coalition and by an inevitable rise in military spending by NATO governments. After the Paris terrorist attacks, Lockheed Martin stock and other defense sector stocks have all gained. Lockheed Martin rose more than six percent, even before some governments announced additional military spending. Other defense stocks also rose, with Raytheon seeing an increase of eight percent and the French military giant Thales SA by six percent.
Time to Be Bullish on LMT Stock?
The U.K. Conservative government led by David Cameron has already added $12.0 billion to the budget for the purchase of military equipment, increasing the total defense budget to $267 billion over the next 10 years. A sizeable chunk of that sum will be used to acquire Lockheed Martin “F-35” jets. (Source: “UK to buy more F-35 jets, boost anti-terror budget – Osborne,” Reuters, November 23, 2015.)
The U.K. has ordered nine Boeing “P-8 Poseidons” and 138 Lockheed Martin F-35s. In addition, the Royal Air Force (RAF) will prolong the operating life of its “134 Eurofighter Typhoon” by another 10 years, stretching to 2040.
In a televised interview, Chancellor of the Exchequer (finance minister) George Osborne said his government would speed up its program to deploy at least 35 “F-24” aircraft to be used on the new Queen Elizabeth aircraft carrier, entering service in 2023. (Source: Ibid.)
The U.K. had already ordered 20 F-35s to be delivered over the next few years, while there are four fifth-generation fighters already in service. So far, however, the British government has confirmed that it will acquire 48 F-35s. It is not yet clear which mix of versions will be included in the 138 aircraft, including the “B” short takeoff (STOVL) version or the basic “F-35A” version. Regardless, Lockheed shareholders will be pleased with the November 23 order.
Just a few days earlier, the Italian government, which was one of the original customers for the F-35, having been part of the program since 1996, has confirmed it will take 90 F-35s for a total current value of about $14.0 billion. Meanwhile, apart from the heavy hardware, the U.K. government has also given a boost to intelligence and counterterrorism, which could also entail contracts for Lockheed Martin, one of the world’s top designers of intelligence-gathering equipment.
The surprising news for owners of Lockheed Martin stock, as well as other defense stocks, is that in 2010, the new expenditures have scrapped earlier plans to contain military budgets. In fact, in 2010, in an effort to reduce the deficit, the British government cut military expenses. Now, leveraging on the need to confront terrorism in response to the Paris attacks—and, no doubt, to the convoluted geopolitics of the Syrian war—Prime Minister Cameron appears to have decided that London can afford to resume its military spending in order to reclaim its role as a great military power.
The increases to the military budget were likely the result of months of planning, but the terrorist attacks of November 13 in Paris and the climate of siege in Europe have served as the ideal scenario in which to announce the strategy. Meanwhile, Prime Minister Cameron has already announced plans for Britain to join France in striking against ISIS in Syria and offered the use of its RAF base in Cyprus. (Source: “UK Offers France Use of Cyprus Airbase for ISIS Strikes,” Haaretz, November 23, 2015.)
My Favorite Way to Invest in Lockheed Martin
LMT stock has a lot of upside, but the volatility may be too much for investors to handle. Lockheed Martin has issued a new $7.0-billion bond to be divided into different tranches. (Source: “Lockheed Said to Plan Bond Offer Backing Sikorsky Takeover,” Treeangle, November 17, 2015.)
Lockheed Martin, formed in 1995 from the merger of Lockheed Corporation and Martin Marietta, employs approximately 150,000 people. It is active in four business sectors, including aerospace, electronics, information systems, and space systems. Lockheed Martin is the largest U.S. military contractor with more than 80% of its revenue coming from the Ministry of Defense or other federal agency contracts worth some $45.0 billion, according to 2015 estimates.
Lockheed Martin has issued bonds divided into six tranches with various maturities. Yields range from 1.85% for the three-year to 4.70% for the 30-year bond. The bonds are fixed-rate senior unsecured and can be traded for minimum cuts of $2,000, with a multiple additional 1,000. The bonds are rated “investment grade BBB+” by Standard & Poor’s and “Baa1” by Moody’s.