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4 Defense Stocks That Could Pay Off Big in 2014

With no sequestration, flat Pentagon spending doesn’t look so bad

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Lockheed Martin (LMT)

defense-stocks-LMT-stockLockheed Martin (LMT), which reported earnings on Thursday morning, beat the Street on the top and bottom lines — despite the fact that its fourth-quarter profit was 19% lower than a year earlier. Earnings of $2.38 per share easily topped the consensus $2.11, while revenue of $11.53 billion trumped the $11.34 billion forecast.

That’s not bad for the largest pure-play defense stock — and it illustrates the value of LMT’s relentless cost-cutting efforts. The defense bill helped LMT in two important ways:

First, the troubled and pricey F-35 Lightning II fighter emerged largely unscathed for 2014 and 2015. The bill funded 68 of the sophisticated fighter jets over the next two years and maintained the total order at 2,443.  Second, the bill earmarks $333.5 million for a new Air Force search and rescue helicopter — a joint venture between LMT and Sikorsky was the sole bidder on the program.

With a $48.8 billion market cap, LMT trades at 15 times forward earnings and has a price to earnings growth (PEG) ratio of 2.27, which is in line with most other defense stocks. Its current dividend yield is the highest among the top six defense stocks at 3.5%.

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