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Should You Buy Lockheed Martin?

Over the last couple months, I’ve shown you many stocks to avoid.  Here are a few…

Stocks to consider buying.  Here are a few of them…

All these recommendations are to help you either avoid pain and terrible stocks.  Or to help you find potentially great stocks to invest in during this pandemic.

Doing both will help you earn higher than average investment returns and build your wealth.

But most only think of investing well. 

Today, I want to answer the question – Is Lockheed Martin A Buy?

Lockheed Martin (LMT) is the largest defense contractor in the world.  And develops airplanes, missile defense systems, space technology, and various other defense products.

Its got a market cap of $107.2 billion.  And it pays a 2.7% dividend… This is reason #1 to consider buying its stock.

Lockheed Martin’s 2.7% Dividend

Over the last decade Lockheed’s paid out a total of $57.89 per share in dividends.

At today’s count of 283 million shares that’s equal to $16.4 billion paid out to shareholders in the last decade.

Plus, it also grew its dividend 256% from $2.64 per share in 2010 to $9.40 per share in that time.  This is an annual dividend growth rate on average of 25.6% per year.

These dividend payments and the growth in them help you earn cash if you take the money out.  Or allow you to buy more shares over time if you reinvest the dividends.

It can do this because it earns huge profits and cash flows.  Which is reason #2 to consider buying Lockheed Martin.

Lockheed Earns Huge Profits

Over the last decade it earned an average operating income margin of 10.8% per year.

I look for anything above 10% on a consistent basis… Why?

Because after evaluating thousands of companies over the last 14 years of my career I estimate fewer than 5% of all companies in the world produce consistent operating profit margins above 10% over extended periods.

Another way to show you the power of Lockheed Martin is with its free cash flow to sales ratio (FCF/Sales). Over the last decade its 7% per year on average.

I call this the “Cash Machine” metric.

If companies are consistently above 5% on this number, it makes the company a cash machine that spits out a ton of money.

Lockheed surpasses my thresholds on both important metrics.  This not only makes it an incredibly safe investment.  But it also means it’s one of the best operating businesses in the world in terms of profits and cash flows.

These profits also allow it to continually reinvest in operations which is how it’s become so dominant.  

Consistently great profits also give it a huge layer of safety because its business is protected from negative effects of the coronavirus… Which is reason #3 to consider buying its stock.

The Coronavirus Won’t Harm Lockheed Martin

People may stop paying their mortgages.

They may stop paying their credit cards.

They may stop paying their vehicle loans.

And they may stop paying their student loans.

Because of the economic issues we’re now dealing with today; people may stop paying these things if they need to.

But governments worldwide won’t stop paying for defense equipment.

This was proved out on October 20th, 2020 when Lockheed released its most up to date quarterly earnings.

  • Revenue was up 9% on a year to year quarterly basis to $16.5 billion.
  • Operating profit was up 2% on a year to year quarterly basis to $2.2 billion.
  • And earnings per share rose 6.9% on a year to year quarterly basis to $6.05 per share.

These things combined give enormous stability to the company in these highly uncertain times… Which also allows it to have ultra-low debt levels.

This is reason #3 to consider buying its stock.

Lockheed Martin Has Low Debt Levels

At first glance Lockheed looks like it has a lot of debt because its debt to equity ratio is 3.38… I look for anything 1 and below on this number.

But this also shows why you shouldn’t just rely on metrics…

When looking at its balance sheet it has only $12.7 billion worth of debt.

This is only 11.8% of its $107.2 billion market cap.

This is possible due to the huge profits and cash flows it earns from its dominant competitive advantages.  Combined with the stability of the coronavirus not harming its business.

The three things I’ve already talked about make it a safe investment to consider buying…

But what about its valuation?  Is it cheap? 

Lockheed Martin Is Also Cheap

With the stock market being near its all time high, you might expect a great stock like Lockheed Martin to be overvalued…  But it’s not.

Its P/E is 16.8.

Its P/CF is 12.8.

And its forward P/E is 14.5.

I look to buy companies with valuations below 20 on all these metrics to consider the company undervalued or at worst fairly valued…

Why below 20?

Because that means the company is at worst fairly valued… And if its significantly under 20 that means the company is undervalued.

When a stock is fairly valued or undervalued it gives you more margin of safety in investing terms.

This means you have a better chance of earning higher returns owning its stock over time.  And these things combined make it a less risky investment.

With Lockheed Martin being undervalued it means there’s a larger margin of safety owning its stock.  This means you have a better chance of earning high investment returns owning it going forward.  And these make investing in it safer.

Conclusion

If you’re looking for a solid, safe, stable, high dividend paying, dominant, and enormously profitable stock to protect your investment portfolio – consider buying Lockheed Martin for all the reasons above.

Use the following links to some of our recent articles to learn other ways to protect yourself and your investments in these uncertain times. 

Disclosure – Jason Rivera is a 13+ year veteran value investor who now spends much of his time helping other investors earn higher than average investment returns safely. He does not have any holdings in any securities mentioned above and the article expresses his own opinions. He has no business relationship with any company mentioned above.

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