Lockheed Martin (LMT)

They sell quality missile systems to many countries and previous-generation fighter jets to allies. The defence space will continue to enjoy tailwinds.

Given the Iran-US-Israel war, there will be more demand for defence.

Probably two different animals in terms of exposures. Which one you prefer depends on what you're looking for.

BA is coming off a very difficult time in terms of culture -- relationship with FAA, turnaround, planes grounded. Tough road, but hopefully coming off the bottom. Growing ~14%. Recently announced increase in production levels. This may improve FCF.

LMT growing at a slower rate of 5%. Much more exposure to defense. Robust spending on defense around the world.

For defense, you'd want to go to the US. LMT is a leader in the space, if you had to choose a name.

Sector continues to perform technically -- higher highs and higher lows. 200-day MA is moving higher, long-term weekly averages are strong too. Only concern is that it's really jumped above the bandwidth of gradual growth. Plus, how much will elections affect US defense spending? Politics can change, and then so can the spending.

A year ago, shares slid on fears of Trump slashing defence spending, but it's not up 31% last month on increased defence spending. Last week, they reported an excellent quarter with a top and bottom line beat with a strong full-year forecast.

Momentum has picked up. They make helicopters that armed forces around the world want.

2025 was an annus horibilis for them: they lost the F-47 contract to Boeing, they paid a punitive charge, and Musk punked them in a tweet. However, they are making the F-35 as fast as they 

Not just about aerospace and defense, but also about robotics (pilotless fighter jets and bombers, which should mitigate a lot of pilot error). Investors should have 5-10% of a portfolio devoted to robotics, and if you get aerospace and defense on top of that, even better.

He also really likes ROK.

The dividend is nearly 3% and trades only at 16x PE. Could start a position now.

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.

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.

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.

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%.

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