Defense giant Lockheed Martin (NYSE:LMT) is up in today’s trading session. Those wondering why might be surprised to find out why. However, those who lived through the 1980s will find the reason oddly familiar – Russia. Reports emerged that Vladimir Putin was poised to mobilize additional troops to get involved in the Ukraine conflict. This was considered a “major escalation” of the war in question.
The move not only gave Lockheed Martin a leg up but also offered boosts to other defense stocks as well.
While saber-rattling may sound like a bad excuse to buy in, I’m mildly bullish on Lockheed Martin. Granted, it offers limited upside potential. However, based on Lockheed Martin’s upcoming product line and current geopolitical conditions, it’s likely to be a very popular company in the months ahead.
Mildly Troubling Matters in Investor Sentiment for LMT Stock
There are some factors of investor sentiment that are quite good for Lockheed Martin. However, not all of them are quite that rosy. Lockheed Martin has a Smart Score of 9 out of 10 on TipRanks. That’s both the second-highest level of “outperform” and the second-highest score period.
This suggests that Lockheed Martin has a much better than even chance to outperform the broader market. Yet despite this clear win, Lockheed Martin insiders seem less than convinced about the company’s overall chances going forward.
Insider trading at Lockheed Martin focuses on selling, though mostly in raw numbers. Insiders sold $2.7 million in Lockheed shares in the last three months. However, in the aggregate, insiders staged three buy transactions against just one sell transaction.
Informative sales proved to be a major difference; only one of those buy transactions was informative, from director John Donovan, who bought $250,367 in shares two months ago. Executive Vice President Gregory M. Ulmer’s informative sell of $2.9 million, however, swamped that buy handily.
Going back over the last 12 months, meanwhile, there were 13 buy transactions against 21 sell transactions. Clearly, Lockheed Martin insiders look to be selling out. That picture is changing somewhat in more current aggregate figures, but insiders aren’t looking for a lot out of their own company.
A Staggering Array of Firepower for Lockheed Martin
While the insiders are looking a bit concerned about their own company’s performance, one point that seems to be working in Lockheed Martin’s favor is its overall product cycle. Lockheed Martin has made several big sales in recent days and is coming out with new products that smack of science fiction.
First, Lockheed Martin recently sold 12 Romeo submarine hunters to Australia. Said purchase was worth around $985 million USD. Switzerland, meanwhile, joined in the fray with a deal to buy 36 F-35A fighters valued at around $6.25 billion USD.
The deal faced controversy among Swiss citizens, who were planning a referendum that would have blocked the purchase altogether.
However, Lockheed Martin is running into some supply chain problems. One deal that would have seen eight F-35 fighters completed and shipped to the U.S military was put on hold. The reason? Lockheed Martin was using a Chinese-made alloy in their construction, and the Department of Defense halted delivery as a result.
This all pales in comparison to one big delivery. Just two days ago, the U.S military took possession of “the most powerful laser weapon till date.” Developed by Lockheed Martin, the weapon is a 300-kilowatt directed energy weapon (DEW).
The weapon incorporates “spectral beam combination architecture.” This technology produces a single powerful beam by combining the output of several laser emitters at once. It’s particularly useful against ballistic missiles and similar weapons.
Take all that together, and Lockheed Martin’s balance sheet looks pretty solid for the foreseeable future. While the F-35 alloy problem might cause it some trouble in the near term, the sheer bulk of other sales should help ameliorate any problems therein.
Is LMT Stock a Buy or Sell?
Turning to Wall Street, LMT stock has a Hold consensus rating. That’s based on three Buys and nine Holds assigned in the past three months. The average Lockheed Martin price target of $472.33 implies 9.81% upside potential. Analyst price targets range from a low of $406 per share to a high of $539 per share.
Conclusion: Conditions are Right for Success in the Defense Field
The good news for Lockheed Martin, and other defense firms, is that the current conditions are just right for success in the defense field. The macroeconomic conditions that are hitting retailers and manufacturers hard will have little impact on Lockheed Martin because most people don’t buy from them anyway.
Lockheed Martin’s focus on government sales helps insulate it from the worst of any recession. Governments, after all, can always get more money when they need it.
Whether by hiking taxes on whatever businesses are still operating or by printing, governments don’t care much about the limits normal people struggle under.
While there’s very limited upside potential here—one of a handful of stocks with less than 10% upside—it’s likely to prove a stable and solid investment. Its delivery of several major new weapons systems is a good sign for the company, and it’s likely to carry on in this vein for some time. There’s the whole China-Taiwan point to consider, after all.
Plus, with North Korea engaging in mildly frequent nuclear missile testing— the country just clarified its nuclear chain of command — that should further destabilize elements and make Lockheed Martin’s product line that much more attractive. Particularly the anti-missile lines.
An increasingly unstable world makes defense stock options attractive. That’s why I’m bullish on Lockheed Martin, a company that’s increasingly stepping in to meet the world’s defensive needs.
