Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Nvidia Numero Uno in Count Down to President Donald Pump Election Victory - 5th Nov 24
Trump or Harris - Who Wins US Presidential Election 2024 Forecast Prediction - 5th Nov 24
Stock Market Brief in Count Down to US Election Result 2024 - 3rd Nov 24
Gold Stocks’ Winter Rally 2024 - 3rd Nov 24
Why Countdown to U.S. Recession is Underway - 3rd Nov 24
Stock Market Trend Forecast to Jan 2025 - 2nd Nov 24
President Donald PUMP Forecast to Win US Presidential Election 2024 - 1st Nov 24
At These Levels, Buying Silver Is Like Getting It At $5 In 2003 - 28th Oct 24
Nvidia Numero Uno Selling Shovels in the AI Gold Rush - 28th Oct 24
The Future of Online Casinos - 28th Oct 24
Panic in the Air As Stock Market Correction Delivers Deep Opps in AI Tech Stocks - 27th Oct 24
Stocks, Bitcoin, Crypto's Counting Down to President Donald Pump! - 27th Oct 24
UK Budget 2024 - What to do Before 30th Oct - Pensions and ISA's - 27th Oct 24
7 Days of Crypto Opportunities Starts NOW - 27th Oct 24
The Power Law in Venture Capital: How Visionary Investors Like Yuri Milner Have Shaped the Future - 27th Oct 24
This Points To Significantly Higher Silver Prices - 27th Oct 24
US House Prices Trend Forecast 2024 to 2026 - 11th Oct 24
US Housing Market Analysis - Immigration Drives House Prices Higher - 30th Sep 24
Stock Market October Correction - 30th Sep 24
The Folly of Tariffs and Trade Wars - 30th Sep 24
Gold: 5 principles to help you stay ahead of price turns - 30th Sep 24
The Everything Rally will Spark multi year Bull Market - 30th Sep 24
US FIXED MORTGAGES LIMITING SUPPLY - 23rd Sep 24
US Housing Market Free Equity - 23rd Sep 24
US Rate Cut FOMO In Stock Market Correction Window - 22nd Sep 24
US State Demographics - 22nd Sep 24
Gold and Silver Shine as the Fed Cuts Rates: What’s Next? - 22nd Sep 24
Stock Market Sentiment Speaks:Nothing Can Topple This Market - 22nd Sep 24
US Population Growth Rate - 17th Sep 24
Are Stocks Overheating? - 17th Sep 24
Sentiment Speaks: Silver Is At A Major Turning Point - 17th Sep 24
If The Stock Market Turn Quickly, How Bad Can Things Get? - 17th Sep 24
IMMIGRATION DRIVES HOUSE PRICES HIGHER - 12th Sep 24
Global Debt Bubble - 12th Sep 24
Gold’s Outlook CPI Data - 12th Sep 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Why I Stopped Worrying and Learned to Love the Military Industrial Complex, Investing in Defense Stocks

Companies / Sector Analysis Apr 12, 2012 - 07:53 AM GMT

By: Money_Morning

Companies

Best Financial Markets Analysis ArticleGS Early, Contributing Writer writes: Last year when Congress formed its much-lauded "Supercommittee" to sort out America's debt crisis, there was a lot of handwringing about draconian budget cuts.

But true to form, on the eve of an election year, our politicians did nothing and the sequestration clock began to tick.


In essence, they made the bold move to kick the can down the road.

The problem is if the clock is allowed to keep ticking, those same draconian cuts will happen anyway.

No industry is more aware of this than the defense sector.

For them it is literally like turning a battleship - the major players need a lot of lead time to readjust their bearings.

So it's no surprise that the defense sector, which has a budget bigger than the combined defense budgets of at least the next 30 countries in the world, is worried more than most about significant cuts.

And when corporate execs worry, so does Wall Street.

But somehow, I think the military industrial complex will survive. For investors, it will be all about picking the right players.

Investing in Defense Stocks: Lockheed Martin's Big Advantage
One of them is Lockheed Martin (NYSE: LMT).

As the great military strategist Sun Tzu once said, "Opportunities multiply as they are seized."

Today, there is no company better at seizing opportunities than Lockheed Martin.

Of the $40 billion or so in annual revenue LMT brings in, $36 billion of it is government contracts, with the lion's share being defense contracts.

That proportion is 25% larger than its closest competitors like Boeing (NYSE: BA) and Northrop Grumman (NYSE: NOC). Think of it as the Citibank (NYSE: C) of defense contractors, with all the "too big to fail" implications therein.

Lockheed has become a de facto quasi-governmental agency unto itself.

As such, Lockheed has the ability to go to Congress and ask them to find ways to keep the battleship of defense on the most direct path forward.

Having this kind of influence is highly beneficial for a company, and LMT's stock price has actually been rising since last fall-even under the threat of budget cuts.

In fact, recently Congress quietly passed a bill that would exempt defense programs from the inevitable cuts that would come to pass if sequestration is activated Jan. 2, 2013.

That allows the big contractors like Lockheed to focus on business as usual.

In LMT's case, sales of the next generation F-35 fighters are on schedule, as are the orders for the Navy's Littoral Combat Ships. Its Joint Light Tactical Vehicle (JLTV) is also still in the running to replace the Humvee.

Simply put, air, space, sea or land, LMT has a hand in almost every major defense project in the field and on the drawing board.

Lockheed Martin is Too Big to Fail (LMT)
LMT has also branched out from defense and now works with other federal agencies like the IRS and Postal Service. The company also builds and services sensors and monitoring equipment (i.e. speed cameras and surveillance equipment) for state and municipal governments.

It is a rock solid company with one of the world's best customers as its chief client ... and it pays a nice 4.5% dividend to boot.

What's more, new rules out by Congress are going to help make life even better for LMT.

Here's why.

"Bundling" is the new watchword for government contractors and it has some big implications.

Previously, a small contractor could bid on a small piece of a larger contract where it might have specific expertise. This allowed boutique firms to flourish.

Now, the contracts are all bundled and smaller contractors need to work with the prime contractor for their piece of the work.

From the government's side, this saves a lot of money and time working through all the contract proposals.

But from the small contractor's side, it means they are shut out of big contracts. The smaller players don't have the size to operate as a prime contractor and the prime contractors can squeeze the profit margins of the subcontractors and keep more profits for themselves.

While bundling certainly engenders some pity for the small contractors, for prime contractors like LMT, this is another source of long-term revenue growth if the era of shrinking defense budgets actually occurs.

But I have my doubts.

LMT is a great long-term total return play as the cornerstone of U.S. defense.

Stop worrying and learn to love the military industrial complex.

Source :http://moneymorning.com/2012/04/12/investing-in-defense-stocks-why-lockheed-martin-lmt-is-too-big-to-fail/

Money Morning/The Money Map Report

©2011 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in