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Why Shares of Lockheed Martin Are Soaring Today

By Lou Whiteman - Updated Mar 4, 2020 at 2:28PM

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The political risk hanging over defense companies appears to be diminishing.

What happened

Shares of Lockheed Martin (LMT 2.56%) were up more than 5% on Wednesday afternoon, making the nation's largest defense company a top performer on a strong day for defense stocks.

The reason for the jump appears to be political, with the Democratic Super Tuesday primary results viewed as favorable for continued defense spending at current levels.

THAAD launcher system in position in the field

The Terminal High Altitude Area Defense (THAAD) system is a key part of Lockheed Martin's arsenal of products. Image source: Lockheed Martin.

So what

Joe Biden's strong performance on Tuesday vaulted the former vice president into the delegate lead, putting him in a strong position to end up with the Democratic presidential nomination. Biden is seen by investors as more friendly to certain sectors, including healthcare and defense.

In a Washington Post op-ed written in December, his primary rival for the nomination, Sen. Bernie Sanders, noted that he (Sanders) had voted against recent defense budgets, preferring some of the money spent on defense to instead be earmarked for other programs. "It is time to invest in the working families of this country and not a bloated military budget," Sanders wrote.

It's debatable how much a Sanders presidency would really reduce defense spending, but the markets hate uncertainty. With the Pentagon already forced to choose between programs and look for places to cut in the recently released fiscal 2021 budget request, the prospect of a Sanders presidency was an added reason for defense investors to worry.

Now what

The race for the White House is far from over, and investors should expect volatility in defense stocks as the process plays out. Regardless of who wins in November, there is reason to believe the defense cycle is nearing its peak, and growth will be harder to come by in the future.

That doesn't mean investors should avoid defense stocks, but they should be selective about what companies they invest in.

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Lockheed Martin Corporation Stock Quote
Lockheed Martin Corporation
$425.89 (2.56%) $10.64

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