We recently published a list of 10 Stocks That Could 10X Over the Next 5 Years. In this article, we are going to take a look at where Lockheed Martin Corporation (NYSE:LMT) stands against other stocks that could 10x over the next 5 years.
Despite ongoing concerns related to the durability of growth and interest rate policy, Deloitte believes that the broader US economy is fundamentally strong. While real GDP growth witnessed some slowness in Q1 2024, growth rebounded to 3.0% in Q2 2024. All the available evidence demonstrates that policymakers have managed to bring inflation under control without a recession.
Market experts opine that the boom in factory construction is expected to boost the economy’s potential over the upcoming years. Deloitte expects that, in the short term, a faster pace of interest rate cuts by the US Fed is expected to allow households to take on more debt and support continued consumer spending growth. This, together with the elevated government consumption, will help the US economy to grow by 2.7% this year.
Pathway for Rate Cuts
S&P Global expects that the global policy rate easing cycle remains in full swing after the 50-bps cut by the US Fed in mid-September. The US has been outperforming as growth remains above potential, amidst relatively higher policy and market rates. This above-trend growth stems from services and private investment, new business formation, and productivity.
The firm believes that the US Fed is on a path to a steady series of interest-rate cuts, and the company is expecting policy rates to reach the terminal rate of 3.00%-3.25% by 2025 end, with risks in both directions. It has kept its probability of a recession starting in the upcoming 12 months unchanged at 25%. With healthy consumption, the company expects that fears of a recession in the near term are overblown.
Amidst Noise, What Are Investment Implications?
EY believes that the US economy is expected to slow into 2025, with restrictive monetary policy and elevated costs curbing the private sector activity. On the positive side, it expects that the recession risks are contained. Households are expected to spend more cautiously, with labor market conditions and income growth softening further. Also, still-elevated financing costs will continue to prompt the businesses to hire and deploy capital with discretion. Investors should know that lower inflation and interest rates, together with a balanced labor market, should result in cooler but more sustainable economic growth in 2025. EY expects real GDP growth to average ~2.7% in 2024.
Regarding consumer spending, Vanguard believes that healthy balance sheets, together with a steady labor market, should support consumer spending over the coming quarters, though at a more modest pace as compared to recent quarters.
As per Merrill (A Bank of America Company), for long-term investors, events such as worker strikes do not often warrant action. Concerning military conflict events, the company has continued to be constructive on Defense stocks for years considering the trend in geopolitical risk. It was highlighted that the pure-play S&P 500 Defense stocks were able to outperform S&P 500 Energy stocks on October 1. This was because of elevated tensions in Israel/Iran and spike in oil prices. Also, defense stocks outperformed when equity volatility increased in July.
Therefore, Merrill believes that defense stocks provide some non-cyclical diversification benefits that cannot be offered by energy. For interest rates, the risks of supply-side inflation warrant the Fed’s attention considering the potential for disinflation to slow or stop. Also, the geopolitical conflict can mean longer-term rates and borrowing rates for the private sector remaining higher for longer.
To put things in perspective, Wall Street analysts opine that, amidst uncertainties, long-term investors should be inclined towards diversification and fundamentally strong companies that offer strong potential for the next 3-5 years.
Our Methodology
To list the 10 Stocks That Could 10X Over the Next 5 Years, we conducted extensive research and sifted through several online rankings. After extracting the list of 20-25 stocks, we narrowed the list to the following 10 stocks, and ranked them in the ascending order of their hedge fund sentiments, as of Q2 2024.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A military aircraft in flight, showing the strength of the company’s combat & air mobility capability.
Lockheed Martin Corporation (NYSE:LMT)
Number of Hedge Fund Holders: 56
Lockheed Martin Corporation (NYSE:LMT) is a security and aerospace company, which is engaged in the research, design, development, manufacture, integration, and sustainment of technology systems, products, and services.
Wall Street analysts remain optimistic about Lockheed Martin Corporation (NYSE:LMT) primarily because of an improved revenue growth outlook, de-risking of the F-35 program, and favorable market sentiments for the Missiles and Fire Control (MFC) segment. The resumption of F-35 deliveries should help Lockheed Martin Corporation (NYSE:LMT)’s stock for the next 12-18 months. Also, the planned production rate increases because of the US and international demand should aid the MFC segment.
In the past, the strong performance of this segment stemmed from higher global defense spending and the need for advanced missile systems across geopolitical hotspots. Wall Street assumes that this trend is likely to continue, offering a strong foundation for Lockheed Martin Corporation (NYSE:LMT)’s growth over the coming years. Moreover, increased defense spending in Europe and other regions, primarily because of geopolitical tensions, should help the company’s international business.
Lockheed Martin Corporation (NYSE:LMT) appears to be well-placed to benefit from this trend as its diverse portfolio of products and services align with the requirements of international customers. For FY 2024, the company expects net sales in the range of $70,500 million – $71,500 million and free cash flow of between $6,000 million – $6,300 million.
Susquehanna boosted its price target on the shares of Lockheed Martin Corporation (NYSE:LMT) from $540.00 to $565.00, giving a “Positive” rating on 24th July. Wall Street believes that the trend of higher international defense spending creates a significant opportunity for Lockheed Martin Corporation (NYSE:LMT). With countries planning to modernize military capabilities due to evolving global threats, demand for the company’s advanced defense systems should grow.
Overall, LMT ranks 1st on our list of stocks that could 10x over the next 5 years. While we acknowledge the potential of LMT as an investment, our conviction lies in the belief that some deeply undervalued AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for a deeply undervalued AI stock that is more promising than LMT but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
