Don’t be swayed by exaggerated concerns that budgetary austerity on Capitol Hill will undermine U.S. defense firms. Every fiscal year, when the political Kabuki theater draws to a close, the Pentagon almost always gets its way in the last act. Regardless, torrid emerging market demand for sophisticated jet fighter aircraft made in the U.S. will more than make up for any procurement shortfalls.
Emerging nations are clamoring for American technological know-how in military aircraft, a multi-year demand that shows no signs of abating. Renewed tensions in “hotspots” around the world are further fueling new orders.
One defense contractor that’s brimming with jet fighter orders both foreign and domestic: Lockheed Martin (LMT). The company just inked a contract with the Pentagon worth $4.7 billion. The contract calls for LMT to deliver 43 F-35 aircraft for use by the U.S. Marine Corps, Navy and Air Force. Meanwhile, foreign orders continue to pour in, driving the prospects of LMT far into the future.
Lockheed Martin reported third-quarter 2014 revenue of $11.1 billion compared to $11.3 billion in the third quarter of 2013. Earnings in the third quarter came in at $888 million, or $2.76 in earnings per share (EPS), compared to $842 million, or $2.57 in EPS, in the same period a year ago. The dip in revenue is deceptive, though, because it doesn’t account for massive orders in the pipeline and others ready to be signed — all of which will propel LMT stock.
Worldwide Demand Helping LMT Stock Soar
According to figures released this year by the Stockholm International Peace Research Institute (SIPRI), the U.S. generates more foreign sales of weapons systems than any other nation on the planet, making aircraft one of the country’s fastest-growing military export segments. Fixed-wing combat airplanes account for one third of all global arms transfers, with U.S.-based manufacturers among the largest providers.
Several developing countries, especially in the Pacific Rim, are anxious to defend themselves against ancient rivals. Moreover, the emerging military super power of China is rattling its sword among its neighbors, as it makes aggressive moves in contested areas such as the South China Sea.
These tensions are driving new orders for jet fighters made in the U.S., which are especially valued for their advanced avionics and other high-tech features. That’s good news for aerospace giant Lockheed Martin, the top U.S. defense contractor. Major competitors, such as Boeing (BA), rack up substantial military aircraft business but they typically remain behind Lockheed Martin in the perennial contract sweepstakes. That makes LMT stock a good bet in a world fraught with geopolitical tensions.
Several of these multi-billion-dollar deals with U.S. military aircraft makers mandate contractor “offsets” whereby the OEM acquiesces to technology or job sharing partnerships with the buying country.
China isn’t the only country fueling LMT stock. Notably, the Turkish Air Force’s fighter fleet includes 240 Lockheed Martin F-16s that need continual modernization. The Turkish Air Force is a key member of NATO’s mission in Europe and the Near East, making Turkey a steady customer for Lockheed Martin.
Last month, LMT and Turkey’s state-run missile maker, Roketsan, reached an agreement to produce cruise missiles for the F-35 program. As a military partner to the West and crucial gateway to the East, Turkey plans to buy 100 F-35s.
LMT Stock — Blue Skies
Whether vast worldwide spending on a perpetual arms race is good or bad for humanity is not a question for this article. But the fact is, these trends are a permanent, long-term reality and they present opportunities for growth investors. And as the world continues to prove a dangerous place, LMT stock will remain one of the best stocks to buy.
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As of this writing, John Persinos did not hold a position in any of the aforementioned securities.
