We recently compiled a list of the 11 Best Aerospace and Defense Stocks to Buy Right Now. In this article, we are going to take a look at where Lockheed Martin Corporation (NYSE:LMT) stands against the other best aerospace and defense stocks to buy.
How Did The Aerospace And Defense Sector Perform in Q3 2024?
According to a report by Dinan Capital Advisors, the aerospace and defense industry’s EBITDA multiples increased by around 8% on average during the third quarter of 2024. Within the industry, the Maintenance, Repair, and Overhaul (MRO) segment stood out with the highest EBITDA multiple of more than 19%. The robust performance in the sector was driven by increased government spending, AI defense implementation, and increased global travel. As per the report, the global market size of the aerospace and defense sector is estimated to grow from $1 trillion to around $1.5 trillion during the next decade.
There are various factors contributing to growth within the industry. Firstly, the defense sector is experiencing significant expansion due to the ongoing conflicts in the Middle East and Ukraine. This rising defense demand resulted in a record defense order backlog of $747 billion, indicating an 11% increase year-over-year. Moreover, the Senate Armed Services Committee has projected that Congress will finalize the FY25 US defense budget at approximately $833 billion, exceeding last year’s spending limits.
In addition to increased defense spending, which is one segment of the overall aerospace and defense industry, international air traveling is also improving. According to a report by FlightGlobal, the global passenger traffic grew by 7.4% subsequently during the third quarter. Although the profitability of the global airline industry is still down by around $1.7 billion year-over-year, the subsequent growth in passengers indicates an ongoing recovery.
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Mitchell Reiss, American diplomat and distinguished fellow at the Royal United Services Institute appeared on a CNBC interview on November 7 to discuss how the defense sector will perform under President-elect Donald Trump. He said that the United States government is expected to increase its defense spending under President Donald Trump. Currently, defense spending is at its lowest level since 1998 and the geopolitical situation is more dangerous than the said year. Reiss thinks that the president will double down on some of the initiatives from his first term. Trump sees China as a United States adversary and he sees Israel and Saudi Arabia as stabilizing forces in the Middle East and will want to build upon the Abraham Accords. He also thinks that the president will call upon its European allies to increase defense spending.
While Reiss expects the United States’ defense spending to increase, he also noted that a third of the NATO countries are still not hitting the 2% mark in terms of their defense spending. Considering the geopolitical tensions between Russia and Ukraine, European countries would also naturally pivot towards increasing their defense spending. Reiss believes that if someone is interested in defense stocks there is a lot of growth potential within the industry.
Two fighter jets in flight, highlighting the technology and experience of the companies combat aircraft.
Our Methodology
To curate the list of the 11 best aerospace and defense stocks to buy right now, we used the Finviz stock screener. Using the screener we aggregated a list of companies working in the aerospace and defense industry and sorted them by market capitalization. Next, we sourced the number of hedge funds holding each company from Insider Monkey’s Q3 2024 database. The list is ranked in ascending order of the number of hedge funds.
Why do we care about what hedge funds do? 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).
Lockheed Martin Corporation (NYSE:LMT)
Number of Hedge Fund Holders: 58
Lockheed Martin Corporation (NYSE:LMT) is a major international company that specializes in security and aerospace. The company focuses on creating advanced technologies and systems ranging from new aircraft to developing missile defense systems. They produce a wide range of military aircraft, missiles, satellites, and space systems. Its fiscal 2023 annual report shows that the company generated 96% of its revenue from defense-related sales.
The current geopolitical environment is characterized by ongoing conflicts and with Donald Trump’s return to the presidency in 2024 defense budgets are expected to rise higher thereby increasing orders for Lockheed Martin Corporation (NYSE:LMT). In fact, the company already has reached a record high backlog as its third quarter 2024 order backlog stood at more than $165 billion.
The company is well-known for producing the F-35 fighter jet, which is a cutting-edge military aircraft designed for various combat roles. During the third quarter management reported delivering 48 F-35s. In addition, Taiwan is considering purchasing 60 F-35 fighter jets from the company. Taking confidence from its year-to-date performance, management has raised its full-year guidance from the midpoint of $70.5 billion to $71.3 billion in net sales.
Conventum – Alluvium Global Fund stated the following regarding Lockheed Martin Corporation (NYSE:LMT) in its Q3 2024 investor letter:
“Lockheed Martin Corporation (NYSE:LMT) is a new investment for the Fund. This defence contractor had been on our radar for some time, and in July we pulled the trigger. Call it dumb luck, but by quarter’s end that initial 2.0% tranche had grown to 2.4% as a result of its 25.8% return. There was reason for it. In the interim Lockheed’s management reported impressive results revealing its strong backlog and upgrading its full year guidance. We increased our estimates slightly, but not enough to warrant increasing our position at what we now see to be a reasonably (perhaps slightly highly) priced business.”
Overall, LMT ranks 4th on our list of best aerospace and defense stocks to buy right now. While we acknowledge the potential of LMT to grow, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an 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.
