Lockheed Martin (LMT)

A US defence name, an area where she wants some exposure. She is waiting for a bit of a pullback in this space. Pres. Trump wants to increase his defence spending, which is a positive for all defence companies. However, there is a question of timing and funding. Feels that valuations are a little stretched right now.

This pays a nice dividend. They have a free cash flow yield that approaches 9%, so it is very profitable. Investors can expect to make the free cash flow yield plus any growth. A good start for investors to take a look at.

Trump is going to spend a lot on defensive. The guest has a company called Harris instead. But this space is a hold. Add on a pullback. It is a position you should have in your portfolio.

He is very keen on defence stocks. (Owns United Technologies (UTX-N).) There are others he would buy on weakness such as Orbital ATK (OA-N), a long-term play on munitions and the propulsion area. Also, Huntington (HII-N), which does most of the work for the U.S. Navy.

A US defence name? Some of the best companies in the US are in this area. His particular favourite is this one. Really a tech stock in disguise. People think they are just focused on providing US armaments to the US government, but it is far more than that. They are supplying armaments to overseas governments, and have a significant private sector business as well with high-tech, aviation, etc. However, he would be cautious at the current valuation.

A good defence stock? He would caution on rushing in to buy an industry just because a political party says they are going to increase defence spending. Generally speaking, it seems to be a disconnect between what they say and what they actually do. However, defence stocks are not terribly expensive if you look at the free cash flow yield. Lockheed Martin (LMT-N) is his favourite because it is the most profitable and diversified. He has looked at Boeing (BA-N) which is very profitable. Lockheed Martin would be his 1^st choice, and Boeing would be 2^nd.

He expects to hear about an increase in US military spending in tomorrow night’s speech. They will benefit from the border tax.

This is all about defence. Mr. Trump had the tweet on the F 35 that knocked about $15 off the stock, and this is a great chance to buy in. This is going to be a favourite of the new Defence Secretary Mattis. They have all the right programs, especially the missile programs. Expects announcements in the order of $40-$50 billion in new spending this March, which a lot will be on military readiness. Not a cheap stock, but a great secular story and you should be in this name for multiple years. Dividend yield of 2.82%. (Analysts’ price target is $281.32.)

The chart looks really good.

It has much more of its business in the defense contractor space, vs. BA-N that has more or an aerospace component in it. 8-9% growth rate, so it is rather expensive compared to the rest of its peers. He prefers GD-N. Technically LMT-N looks good, but wait before buying.

(Top Pick Nov 25/14, Up 20.23%) He felt we were near a secular trough in defense spending and that it would pick up. He also liked it because it was domestically focused. This group continues to behave well. He would continue to buy it.

An expensive stock. Trading well above where it normally has traded. Just bought Sikorsky. Fairly high debt levels at about 70% of capital. Also, have the F 35 program, which has been mired in controversy. In the end, it may turn out to be a real cash cow for them. At this point he would probably pass.

Lockheed Martin (LMT-N) or United Technology (UTX-N). This is really about defence aerospace versus other industrial technology based companies. He would probably have a preference for United Technologies, primarily because the defence world is really a tough one to figure out. The risk of either winning or losing a program is quite high, which is going to put a damper on any kind of multiple expansion on defence companies.

The aerospace stocks in the US have just been amazing. No surprise as they are basically government organizations. It looks like the F 35 is actually going to fly. His model price is $167.17, a -12%. On any sort of correction you can get on these companies he would put it on his list to Buy.

Focus on themes, rather than stocks, for RRSP US exposure. Take a look at defense or US financials.