Lockheed Martin Corp.’s (LMT) proposed merger with Aerojet Rocketdyne Holdings Inc. (AJRD) was a huge deal that we’ve been excited about from the start.
Now, the Biden Administration’s FTC has sued to block the merger and Aerojet officially dropped it yesterday.
No doubt on paper, the firm’s decision to be bought for $4.4 billion by one of the great aerospace and defense giants made a lot of sense.
Faced with rising R&D and other costs, industry leaders have been making large mergers for the past 30 years.
And you might be wondering why I still recommend this strong defense giant.
Despite this deal falling through, Lockheed Martin has several great catalysts for its stock as Russian aggression is proving the need for a robust U.S. military and billions of dollars in government-approved funding.
Let me show you why these factors have helped this defense stock crush the broader market…
Bulking Up Again
To put all this in its proper perspective, let’s start with a look at growing international tensions that make a strong case for Lockheed Martin as a top defense stock pick.
While the Trump Administration sought to step back from the U.S. bankrolling multinational alliances like NATO (North Atlantic Treaty Organization), aggressive nations have begun to push back on the new Biden Administration to see what its plans are.
Russia is continuing to build up troops on the Ukrainian border. And it’s also playing a more complex diplomatic game with NATO allies, as Germany now gets a majority of its natural gas from Russia.
Meanwhile, China sees the challenges in Ukraine as an opportunity to test the Pacific alliance that Biden has been building. In recent weeks, China has stepped up sorties to the Taiwan’s perimeter. Even North Korea is quietly stepping up its missile testing and contentious rhetoric.
Against this backdrop, U.S. military spending has expanded on a rare bipartisan blowout, with the nearly $780 billion defense authorization act clearing the House in December with a resounding 5-to-1 ratio in support of the nation’s fighting forces and defense contractors.
Now, let’s talk about where Lockheed Martin fits in all this.
No Deal, No Problem
Not only did Lockheed Martin beat analysts’ expectations but it was the only one of the big U.S. defense contractors to do so.
This is one of biggest defense firms in the world, even without the Aerojet deal. What’s more, Aerojet remains a major partner to Lockheed on its propulsion systems.
And that relationship won’t be going away anytime soon.
The fact is, Aerojet builds propulsion systems for a lot of the big players.
In recent years, there have big some big defense deals, but they didn’t threaten the broader industry’s ability to compete.
But losing that merger hasn’t slowed down Lockheed Martin at all. As a matter of fact, there has been a number of recent contracts that underscore the fact that Lockheed Martin continues to deliver great products across its broad array of specialties.
Plenty Left in the Quiver
For example, the company just announced in early February that NASA chose it to build the first rocket to send samples back from Mars.
It’s a nearly $200 million deal, which isn’t huge for the company, but as the Artemis and other programs expand, Lockheed has found a new way to be a key part of the U.S. space program.
On the military side, Lockheed remains a major force to be reckoned with. In December it announced a $9.5 billion deal to supply Finland with 64 F-35 fighter jets. The reason this is such a big breakthrough is that Finland isn’t a part of NATO, so it wasn’t pressured into the deal as a counter to Russia.
Plus, it borders Russia, so this statement is much bigger than if Finland bought planes from French or Swedish firms. It’s a way for Finland to make sure Russia understands that Finland is putting its money where its alliances are. And the contract runs until 2060.
The company also just won a $315 million contract with the U.S. Navy for ongoing support equipment for the Navy’s F-35s.
And there’s a huge potential deal to build the next-generation tanker for the U.S. Air Force. Lockheed has combined with Airbus and just announced that if it wins the contract, it will build the planes in Mobile, Alabama, where it already builds the A220 tanker for Canada.
The point is, Lockheed Martin is firing on all cylinders. It’s not surprising that all these factors have helped light a fire under the stock as the broader market came under pressure.
From its recent low November 2, 2021, through February 10, LMT was up 18% while the S&P 500 was off 2.5%.
This is the kind of defense leader that can and to your net worth, and is a great hedge against rising geopolitical strife.
If you are not quite ready to pull the trigger in the current volatile market, then by all means this stock should be on your wealth-building watchlist.
Cheers and good investing,
— Michael A. Robinson
Source: Strategic Tech Investor