The Sky’s the Limit for Lockheed Martin Corporation
Lockheed Martin Corporation (NYSE:LMT) stock keeps hitting new highs, but this could just be the beginning.
Over the past two years, Lockheed Martin Corporation stock has gained over 50%, with much of the rise occurring in 2016. LMT shares have become rather popular, thanks to an afterburner boost of military splurging on the company’s expensive hardware such as the “F-35” fighter jet. But that’s not all; the F-35 is just one of many revenue generators for LMT. The fact is, the company will gain from the rise of fear and the corresponding need for security that is spreading worldwide.
President Obama had urged the United States Congress to release more funds for military spending in 2015, yet it has only been in the past few months that we have seen a return of the big military contracts. It’s looking ever more likely that Hillary Clinton will win the 2016 presidential election. Like her or not, her leadership promises to be highly interventionist in foreign affairs. This means that military spending will increase and Lockheed Martin, as the largest contractor, is poised to get a nice chunk of a turbocharged defense budget.
All of this suggests that LMT stock could gain another 50%, touching $400.00 within a year. It’s not just in the United States that military spending is increasing. But there is another catalyst that most analysts have missed, and it could make shareholders a fortune.
Could Lockheed Martin Corporation Stock Hit $400?
I’m talking about increased military spending in Europe and Asia as well. One of the reasons is that Russia, whose relations with the U.S. are almost colder than during the Cold War, is doubling or even tripling its own defense investments. This is prompting a slew of more aggressive defense policies at NATO, requiring more expensive equipment to match. (Source: “SITREP | Russian Military Expenditure Overtime,” Indrastra, August 13, 2016.)
The British, for example, want to renew their nuclear submarine fleet, budgeting some £31.0 billion (US$40.1 billion) toward this goal. Some of those billions will likely head in LMT’s direction to make the “Trident” nuclear missiles. Lockheed Martin will also supply new equipment for the “Aegis Ashore” missile system in Poland, to make this former Warsaw Pact member—now a NATO country—into a concrete member of the European missile shield system.
The impression that the world is becoming more dangerous can only help Lockheed Martin. The signs are everywhere. In Syria, which continues to endure the most uncivil of civil wars, the encircled city of Aleppo has been the target of a bitter siege. In Yemen, the Houthi rebels continue to face off against Saudi-backed government troops as peace talks stall. In Libya, the U.S. has formally announced that it will bomb Islamic State (IS) bases. This is a short list that has deliberately excluded at least 43 other conflicts, from Ukraine to the interior of the African continent and Asia, in order to restrain the length of this article.
Russia, which has boosted military spending after an almost-four-year decline, is joined by China and Saudi Arabia with increases of 7.4% and 5.7%. All of this means that Europe will be forced to spend billions in the coming years, as it increases its military spending to replace fighter jets, trainers, military transports, nuclear ballistic missiles, submarines, and battleships—not to mention tanks, drones, and good old-fashioned munitions. Lockheed Martin is simply the largest and best-placed company to benefit from all of this. As an example, LMT will earn some $390.0 billion in revenue from sales of the F-35 jet.
The Pentagon wants to buy some 2,500 units of the new “F-35B” combat jet from Lockheed Martin, which has vertical landing capability. Turkey, perhaps the most Cold War-risk-exposed country, has expressed interest in a total of 100 F-35 Lockheed Martin jets. Meanwhile, for its most recent quarter, LMT confirmed the overall impression that military sales are soaring. Revenues rose 11% to $12.91 billion and earnings climbed by almost 10% to $ 1.02 billion.
The Bottom Line on Lockheed Martin
Increasing sales in F-35 fighter jets and the acquisition of Sikorsky Aircraft Corporation, whose Apache helicopter is still a popular item in the catalogue, did not hurt the bottom line at all. Lockheed Martin stock’s potential brings its defense capability from the Pentagon to investor portfolios.
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