"Blue Chip." "Nifty 50." "Rule Maker."

Over the years, investors have invented many names for the "perfect stock" -- the one you can buy, own, and hold forever (give or take a week). Today, I want to suggest one more name for your consideration. The real perfect stock, the one that deserves a place in your portfolio today, tomorrow, 10 years from now, and beyond: Lockheed Martin.

Who It Is

Lockheed Martin (NYSE: LMT)

What It Does

Everything President Eisenhower ever warned you about the military-industrial complex -- and it does it for a nice profit.

Recent Price per Share


Market Cap

$25.97 billion





P/E = price-to-earnings ratio. ROE = return on equity.

The business
I can't tell you all about Lockheed in the 800 words I've been allotted today. Instead, I'll sketch out just a few key areas of this business, and why they're bound to keep this company looking attractive and making money for its shareholders well into this century, and beyond.

Broadly speaking, Lockheed consists of four business segments:

  • Aeronautics: fighter jets, transport aircraft, unmanned aerial vehicles and the like.
  • Electronic Systems: primarily systems in support of military equipment.
  • Information Systems & Global Solutions (IS&GS): a catch-all ranging from government IT contracting to programs supporting troops abroad.
  • Space Systems: satellites, strategic missile defense, and space exploration.

The first three businesses contribute roughly equal percentages of Lockheed's revenues, with space systems trailing behind at about a 20% share of the business. Profits-wise, aeronautics and electronic systems are the most profitable units, contributing about 35% of pre-tax profit apiece. IS&GS and space make up the balance.

Why it's a core stock
But as I say, this is just a broad outline. Like most defense contractors these days, Lockheed is constantly evolving, shifting emphasis from one business segment to another, spinning off "non-core" businesses and dipping its toes into the water on new opportunities, such as last week's announcement that Lockheed will participate in a seven-year, $2.8 billion project to update the Social Security Administration's computer systems, or last year's contract to create a surveillance camera system for the New York subway system.

To me, though, it's the core of Lockheed's business -- fighter jets -- that makes this company a core stock for any investor's portfolio. When Lockheed and its team of subcontractors, including Northrop Grumman (NYSE: NOC), General Electric (NYSE: GE), and United Technologies (NYSE: UTX), beat out a rival team led by Boeing (NYSE: BA) in the contest to build the Pentagon's F-35 Lightning II fighter jet a few years ago, Lockheed did more than win a contract. It won the contract to build what U.S. Joint Chiefs Chairman Adm. Michael Mullen predicts will be "the last manned fighter" jet ever to be built.

It's hard to overstate just how important the F-35 is to Lockheed, and to investors looking for a stock to own for the long term. Defense industry pundits believe F-35s will still be flying 60 years from now, and will generate roughly $1 trillion in sales for Lockheed domestically. But that's just the beginning. F-35 is an international effort, with foreign partners expected to buy roughly one-third of all the planes Lockheed will build over the next six decades. Add these sales to the mix, and F-35 becomes potentially a $1.3 trillion project.

To put this in perspective, F-35 alone has the potential to secure half of Lockheed's annual revenues over the next 60 years. Suffice it to say I have every confidence the other planes that Lockheed's aerospace unit builds, combined with the multitudinous products from electronics, IS&GS, and space, will have little trouble filling out the remaining half.

There is, of course, a risk to the stock, in the form of defense spending cuts. For the past several months, Secretary of Defense Robert Gates has been running 'round the Pentagon halls, waving a hatchet and looking for programs to cut. Already, high-profile projects led by Raytheon (NYSE: RTN), SAIC (NYSE: SAI), Boeing, and others have fallen victim to Gates' budgetary ax.

But for a long-term investor, fears of a short-term falloff in military spending spell opportunity. Opportunity in the form of a company expected to grow its profits north of 8% per year over the next five years, bolster those returns with a 3.6% annual dividend, yet cost you a mere 9.1 times earnings to own.

In sum
If you're looking for a company to own for the long term, a business that's practically guaranteed to be selling its product for the next 60 years has to sound attractive. When that business is selling for a discount, that only adds to the attraction. To my Foolish eye, there's only one company in the world that meets both these criteria: Lockheed Martin.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.