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Lockheed Martin (LMT) Vs. Raytheon Technologies (RTX): Win Win?

Daniel Laboe

With the US in chaos, it is becoming increasingly difficult to justify stock purchases at our stretched stock market levels. Still, many investors are afraid that they will miss out on a continued rally that has been driven by the Federal Reserve's ostensibly endless money printers and US state economies reopening. I see some unique opportunities within the aerospace & defense sector, which could provide your portfolio with robust long-term returns.

My Defense Recommendations:

Lockheed Martin (LMT)

Lockheed is a defense powerhouse with a fortress of a balance sheet and reliable government contracts that keep on growing. The company has illustrated years of consistent top and bottom-line growth through its well-established relationship with the US government. Roughly 70% of the company's revenue comes from US government contracts. In fact, almost 30% of the total military spending in the US goes to Lockheed Martin.

The Pentagon finalized a deal with Lockheed at the end of 2019 for 478 F-35 fighter jets. This deal was worth $34 billion, making it the largest contract in US government history. Lockheed has over $144 billion in its backlog right now, with 39% of that anticipated to be recognized in 2020.

The global pandemic has not put a damper on Lockheed's growth thus far, with its first quarterly results illustrating robust top and bottom-line growth combined with an expanding backlog of locked-in revenue. Lockheed's management team is confident that this pandemic will have minimal impacts on operations, maintaining its original 2020 guidance.

The most significant risks moving forward are political with this upcoming election giving investors jitters. Both 2020 presidential candidates support maintaining or even expanding the US's military budget, so I remain confident in this firm's continued profitable relationship with the US government.

The drop in LMT's share price has created an excellent opportunity to purchase this highly lucrative stock at a discount. Lockheed's dependable government contracts make this stock a portfolio anchor amid the global economic uncertainties.

LMT is still 12.5% off its all-time highs, and 7 out of 10 analysts are calling this stock a strong buy. Some analysts are giving LMT a price target as high as $500, representing an upside of 29% from the $388 per share it's currently trading at.

Raytheon Technologies (RTX)

Raytheon and the recently merged United Technologies are much more exposed to the economic downturn than its cohort Lockheed because of its sizable consumer segments. RTX has been hammered since the beginning of 2020, with its share price down almost 30%. Their looks to be a sizable amount of upside potential in these shares.

RTX has a reasonable amount of exposure to the consumer aerospace industry, where demand has hit a standstill amid this global pandemic. The business took a marginal decline in Q1 because COVID caused air travel to decline combined with the headwinds from the Boeing (BA) 737 MAX that still plagues its Collins Aerospace division.

Despite these short-term concerns, there are still some sizable tailwinds from its growing military program and the cost synergies of the newly combined firm that are yet to be realized (not to mention the cost cuts the company has recently been making).

RTX is a safe way to invest in the recovery of the aerospace industry without going all in. Its substantial defense portfolio will continue to drive growth alongside its recovering commercial business.

Uncertainty for RTX remains high, but there is undeniably a robust long-term investment opportunity here. 8 out of 11 analysts are calling these shares a buy today. The average price target is $92 representing a 43% upside from the $64 per share RTX is trading at today.

The Takeaway

I would remain cautious at the stock market's current level considering that enormous rally we've had despite the extraordinary amount of economic and now social uncertainty. If you are afraid of missing out on a further rally, I would say that these two options represent healthy purchases, and each yields a robust dividend.

5 Stocks to Soar Past the Pandemic:In addition to the companies you learned about above, we invite you to learn about 5 cutting-edge stocks that could skyrocket from the exponential increase in demand for “stay at home” technologies. This could be one of the biggest buying opportunities of the decade.

See the 5 high-tech stocks now>>


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Raytheon Technologies Corporation (RTX) : Free Stock Analysis Report
 
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