Global defense spending is on the rise putting stocks such as Lockheed Martin (LMT) on an increasing number of investors’ radars. That much is known, but active traders may have a surprising number of reasons to consider the Direxion Daily LMT Bull 2X ETF (LMTL ).
That Direxion ETF is designed to deliver 200% of the daily performance of the defense contractor shares. Due to the fact that it’s a leveraged ETF, LMTL shouldn’t be held for weeks or months on end. However, the underlying stock cooperates with traders that want to tap LMTL on a short-term basis. Year-to-date, shares of Lockheed Martin are higher by 31%.
Solid fundamentals underpin this surge. This indicates that there could be more occasions this year when LMTL will reward tactical traders.
“Lockheed Martin revenue grew 9.1% to $20.2 billion compared with the year-ago quarter, while operating margin topped 11.5%,” said Morningstar’s Nicolas Owens. “The company disclosed new multiyear missile procurement agreements with the US military that may unlock further opportunity for long-term profitable investment.”
There’s a Lot to Like with Lockheed Stock
The U.S. is always a defense spending juggernaut – a scenario that’s amplified under President Trump. That’s a plus for stocks such as Lockheed Martin. Defense names and ETFs have also benefitted from NATO countries and other allies proposing significant increases to defense expenditures.
Investors have discussed those factors for more than a year. Still, one can make the case that there’s value left in shares of Lockheed.
“We upped our forecast for margins in several of Lockheed’s segments, which increased our fair value estimate for the wide-moat contractor’s shares from $538 to $660; they trade 5% below our revised fair value estimate,” added Owens.
Another issue to stay abreast of is the state of the company’s dividend, which has long been durable. Recently, Trump proposed forcing defense contractors to scrap dividends if they can’t meet project deadlines on budget. That’s an evolving scenario. However, if it becomes clear that Lockheed’s dividend is safe, LMTL could deliver short-term upside for traders.
“We believe Lockheed, like others, is stepping up its internal investments in areas of high opportunity to ensure it is aligned with the US military’s priorities and, therefore, makes it unlikely to run into restrictions on shareholder compensation,” concluded Owens.
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