It’s a bad day to be in defense. Defense stocks like Lockheed Martin (NYSE:LMT), Kratos Defense (NASDAQ:KTOS), and a pack of others took hits throughout Friday’s trading. Lockheed Martin was down slightly, while Kratos is up slightly for the afternoon. However, much of the sector has been in decline thanks to some new developments in Washington.
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The problem is not the ongoing and highly fractious race for Speaker of the House. At least, not completely. It’s connected, however, as Republican Kevin McCarthy—who has now lost at least 11 separate votes—is working to make deals to help get him installed in the slot. One such deal would see defense spending lowered by $75 billion. The agreement requires McCarthy to limit spending to amounts spent in 2022.
The move, however, may prove to backfire on McCarthy. Republicans in favor of strong defense won’t want to see levels that are more appropriate for an America before the price of everything exploded into inflationary pricing. However, defense stocks have one critical edge that may give them just what they need to succeed: dividends. The ability for a stock to pay its investors in something more than capital gains seldom hurts. With defense stocks getting a boost from government spending, that often allows for some extra payout to investors.
The nature of defense stocks, though, causes some deviation among analysts. For instance, Lockheed Martin is considered a Hold. Kratos Defense, however, is a Moderate Buy. Lockheed Martin’s average price target of $490.53 gives its shares a comparatively modest 3.38% upside potential. Meanwhile, Kratos’ $14.70 average price target allows its shares 40% upside.
