Jim Cramer - Mad Money Lockheed Martin LMT-N WEAK BUY Feb 05, 2024

A reasonable defensive company given world tensions. This will help their order book as defense budgets climb. Trades at a low 17x PE. A decent stock. He prefers RTX, because it also has an aerospace business in addition to defence, which is a hedge.

Has done well. Good backlog of contracts. Leader. Lots of innovation. Earnings growth in next little while might be a bit weaker. 22x forward earnings. Outcome of US election might sway strength of the stock one way or another. Bit expensive.

He bought it because he wanted defence exposure. Unfortunately, the world will demand defense (Middle East, Ukraine, BRIC). LMT's order book for fighter jets is strong. He bought a small position, because the valuation is high--he bit the bullet. He will add on weakness. Their last report showed signs of life in the margins, now that supply chain problems are gone.

He hates to say this, but the world will remain a violent place. 

Doesn't see anyone killing the F-35 program.

Problem is these defense companies make too much company and the taxpayers doesn't get their bang for their buck. Shares have come down nicely to a buy level. It yields only 2.7%.

There used to be 51 defence contractors, but after merging there are now only five major companies. Rather than innovative, these companies are gaming government contracts. Trump appointed Elon Musk to the new Efficency Dept. and Musk openly criticized Lockheed Martin's F-35's design and should be replaced by drones. However the LMT CEO responded that enemies use fancy fighter jets of their own, and Israel recently effectively used F-35s against Iran. Musk's criticism have put the defence industry under a microscope, an industry that has always been sacrosanct. Nobody wants to be accused of being weak on defence. LMT is -14.77% since Trump was elected. Barclays just stated that defence remains difficult with more budget risk than thought, given Musk. For pure defense stocks, wait and see. This sector is untouchable.

Shares have down so much that it's hard to dislike anymore, but in terms of US defence, he suspects Washington will tilt more towards companies like Palantir.

LMT has definitely done better over the last couple of years. BA is a bit of a recovery play here. In general, where we are in the cycle, he thinks we're in phase 2 but on the cusp of phase 3. Phase 2 is typically where materials, industrials, and technology continue to do well. 

These names should do OK, but we are approaching the end of the cycle. Ultimately, at some point, we'll see rotation out of these industrial plays.