As we are conducting routine site maintenance, you may experience minor intermittent service disruptions. We appreciate your patience during this time.

Lockheed Martin: Stock of the Week

Do rising geopolitical tensions and a new space race present a reason to invest?

Andrew Willis 19 September, 2022 | 4:28AM
Facebook Twitter LinkedIn

 

 

Explore more Stock of the Week episodes here

Andrew Willis: With the war in Ukraine, tensions around the Taiwan Strait and an appetite to return to the moon happening all at once, investors might be wondering about the stocks behind the related businesses of weapons and space.

The returns of the spaceship business are as complex as the underlying products, and are about as difficult to predict as the political process. But there are some advantages to investing in the defence industry. Take Lockheed Martin (LMT)’s deal with the U.S. government to maintain the F-35 fighter jet until 2070. Long-lasting revenue streams come with that political process, where trust between government and enterprises creates an insular environment and contributes to a wide moat.

Lockheed Martin Stock has a Wide Moat

The Lockheed Martin stock moat also extends into space, where we see commercial investors like Amazon choose consortiums that include trusted defence ‘primes’ like Lockheed. Plus, as of 2018, 60% of revenues in the space sector were still from the government.

Equity analyst Krzysztof Smalec favours companies that can generate a steady stream of contract wins with tangible growth profiles. That F-35 deal, for instance, already accounts for 30% of Lockheed’s revenue, and we shouldn’t discount ongoing maintenance deals.

Military Stocks and Budgets

Defence investors should also be looking for deterrence, or the act of governments increasing their military budgets. We expect the current environment to last at least several years, which could benefit businesses like Lockheed’s hypersonic and missile defence programs.

In weighing the opportunities for arms manufacturers ahead, it’s also worth considering related ESG risks, which are significant at Lockheed according to Morningstar Sustainalytics. Which leads to another thing for investors to watch for with companies that sell weapons: who are the buyers?

For Morningstar, I’m Andrew Willis.

 

Get the Latest Stock Insights in Your Inbox

Subscribe Here

Facebook Twitter LinkedIn

Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
Lockheed Martin Corp399.74 USD-1.94Rating

About Author

Andrew Willis

Andrew Willis  is Senior Editor at Morningstar.ca. He previously produced content for Fidelity Investments and finance events for Euromoney Institutional Investor and has written in the past for Thomson Reuters and CNN. Follow him on Twitter @AndrewWillisCDN.

© Copyright 2022 Morningstar, Inc. All rights reserved.

Terms of Use        Privacy Policy