Buy: Lockheed Martin
As the largest defense pure play, Lockheed Martin (LMT) seems like a logical sell choice at a time when much of the federal government is officially idled and Pentagon budgets are cratering.
The risk seems even more pronounced considering that more than 80% of LMT’s revenue in the fiscal second quarter came from federal sales — including major Pentagon contracts for the F-35 Lightning II Joint Strike Fighter, Littoral Combat Ship, Patriot Advanced Capability-3 missile and the AEGIS missile defense system.
But that’s only part of the story. Despite revenues falling by more 3% in the second quarter, operating profit and margins actually improved as the company cuts operating costs and boosts efficiency. On Monday, Lockheed Martin also scaled back its planned furloughs from 3,000 workers to 2,400 after the Pentagon ordered most employees back to work.
Another potential bright spot: international sales opportunities. South Korea’s rejection of low-bidder Boeing’s F-15 Silent Eagle for a planned 60-fighter jet procurement contract revives LMT’s fortunes for its F-35. It also doesn’t hurt that LMT’s current dividend is a stable and notable 4.3%.