Stock of the Week
NYSE Symbol: LMT
Price as of 3/22: $291.22
The aerospace industry is in uncharted waters with the coronavirus shutting down the major airlines. While the federal government will certainly aid these companies and the sector, the big unknown is whether Congress will ask for equity stakes thereby diluting current shareholders similar to the bank stocks in 2008. Investors looking to reduce exposure to the airlines or Boeing, but still invest in the aerospace sector may want to look at defense stocks with a majority of their business coming from government around the global. The three largest pure play defense stocks in the US include Lockheed Martin (LMT) with a 3% yield, Northrop Grumman (NOC) with a 2% yield and Raytheon (RTN) with a 3% yield. This week we will highlight the Pentagon's largest contractor, Lockheed Martin.
Known for their F-35 fighter jets which account for 25% of revenue, Lockheed Martin is in an enviable position of receiving a majority of their business from our federal government and other governments around the world. In the past week, the Pentagon increased the amount of interim payments it makes to defense contractors in an effort to give them a financial boost as the coronavirus pandemic weakens the broader economy. Lockheed Martin applauded the move to allow them to flow these funds to their supply chain partners.
Lockheed's stock is down 35% in the last month now trading at a one year low. With the recent sell off, the dividend yield has risen to 3.3%. The stock now trades for a little more than one times sales and just 11 times earnings which should hold up since a majority of their business is coming from the government. Lockheed has consistently raised their dividend year after year thanks to strong cash flow and a huge backlog of over $140 billion in new orders. In uncertain times like this, defense stocks like Lockheed Martin should hold up well.