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Why Lockheed Martin Stock Climbed Higher in March

By Lou Whiteman - Apr 2, 2021 at 1:01PM

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A recent underperformer begins to play catch up.

What happened

Lockheed Martin (LMT -1.47%) shares underwhelmed in 2020, losing to the S&P 500 by more than 25 percentage points during the year. But investors warmed to the company in March, sending the shares up 11.9% for the month, according to data provided by S&P Global Market Intelligence.

So what

Lockheed Martin is the world's largest defense contractor, and the company's shares underperformed in 2020 due to concerns that increased government pandemic spending, coupled with a new occupant in the White House, would mean a slowdown in Pentagon funding.

A Lockheed Martin F-22 in flight.

Image source: Lockheed Martin.

But even if spending does slow, it will still be substantial. And Lockheed Martin has provided some fresh reminders that its portfolio is well-aligned with defense priorities. The company mid-month was named one of two finalists to design a next-generation missile system, an award that could eventually be worth billions. If nothing else, it will provide significant funds to continue important research and development work.

Lockheed is also likely benefiting from commentary supporting its planned $4.4 billion acquisition of Aerojet Rocketdyne (AJRD -0.63%), which has faced criticism from rivals including Raytheon Technologies. A number of former Defense Department officials in recent weeks have written editorials in support of the deal.

Finally, Lockheed Martin is one of a number of stocks basking in the glow of Cathie Wood's Ark Invest, the hottest name in exchange-traded funds right now. Ark owns shares of Lockheed Martin in its ARK Autonomous Technology and Robotics ETF.

Now what

Defense contractors are prone to cyclical swings, but Lockheed Martin has an arsenal that should hold up well through all budget environments. The company as of year's end had a backlog of more than $147 billion in future orders, and leading positions on important programs including the F-35 Joint Strike Fighter.

Given the stock's long-term potential and attractive dividend yield of nearly 3%, I see no reason not to buy into Lockheed Martin right now.

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Stocks Mentioned

Lockheed Martin Corporation Stock Quote
Lockheed Martin Corporation
LMT
$427.94 (-1.47%) $-6.39
Aerojet Rocketdyne Holdings, Inc. Stock Quote
Aerojet Rocketdyne Holdings, Inc.
AJRD
$39.59 (-0.63%) $0.25

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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