Core Viewpoint - Lockheed Martin has experienced a slight decline of 0.7% in stock price over the past six months, underperforming the S&P 500's 19.5% gain, raising questions about potential investment opportunities or risks [1]. Group 1: Backlog and Demand - Lockheed Martin's backlog stands at $179.1 billion, with a year-on-year growth average of 6.8% over the last two years, indicating soft demand and challenges in securing new orders compared to sector performance [4]. - The importance of tracking backlog is emphasized as it reflects the value of outstanding orders, providing insight into future revenue streams for defense contractors [3]. Group 2: Earnings Performance - The company's earnings per share (EPS) has declined by 5.2% annually over the last five years, despite a revenue growth of 2.7%, suggesting reduced profitability on a per-share basis [5]. - This trend indicates that while revenue has increased, the company has become less efficient in generating profit from its sales [5]. Group 3: Return on Invested Capital (ROIC) - Lockheed Martin's return on invested capital (ROIC) has significantly decreased in recent years, raising concerns about the company's ability to generate operating profit relative to its capital raised [6][7]. - The declining ROIC may reflect fewer profitable growth opportunities, which could impact future stock performance [7]. Group 4: Investment Outlook - The stock currently trades at a forward price-to-earnings (P/E) ratio of 17, valued at $468.11 per share, which is considered fair but lacks significant upside potential compared to the risks involved [8]. - Analysts suggest that there are better investment opportunities available in the market at this time [8][9].

Geopolitical & Industry Dynamics - Turkey to hold further negotiations with Lockheed Martin to address pricing disagreements regarding new F-16 fighter jet orders valued in the billions of dollars [1]

Core Insights - The new American industrial cycle is perceived to be emerging from the defense sector rather than Silicon Valley [1] Group 1: Economic Perspective - The author is an economist and independent investor based in Argentina, currently pursuing a Ph.D. in Economics [1] - The research connects macroeconomic context with company-level valuation to identify long-term investment opportunities [1] Group 2: Investment Philosophy - The investment philosophy focuses on deep-value approaches with a long-term vision, targeting underfollowed or undervalued companies [1] - Established leaders are also considered when new opportunities or structural value emerge [1]

Core Insights - Major defense ETFs experienced a decline at the start of November 2025, with SPDR S&P Aerospace & Defense ETF (XAR) slipping approximately 2.6% and iShares U.S. Aerospace & Defense ETF (ITA) dropping 1.9% over two trading sessions [1][2] - Despite the recent pullback, defense ETFs are considered attractive for long-term investors due to sustained increases in government defense spending, technological advancements, and geopolitical tensions [5][6] Market Dynamics - The recent slump in Defense ETFs is attributed to short-term market mechanics and broader industry-specific concerns, including inflationary pressures, labor shortages, and the ongoing U.S. government shutdown [3][4] - Negative sentiment in segments like commercial aerospace can weigh on the entire fund, even if core defense holdings remain resilient [3] Industry Outlook - Global defense spending reached a record $2.46 trillion in 2024, driven by deteriorating security environments and heightened threat perceptions, particularly in Europe and MENA [5][6] - The aerospace and defense manufacturing sector is expected to maintain a strong pace, with increased investments in advanced weapon systems and emerging technologies [6] Company Performance - Prominent defense contractors such as Lockheed Martin, General Dynamics, Boeing, and Northrop Grumman reported strong earnings in their third-quarter results, indicating robust underlying business health supported by solid product demand [7] - These companies have a strong backlog, suggesting solid revenue growth prospects, making the recent ETF dips likely a short-lived matter [7] Investment Opportunities - Current dips in defense ETFs present attractive buying opportunities for long-term investors, with specific ETFs highlighted for their growth potential: - SPDR S&P Aerospace & Defense ETF (XAR) has $4.71 billion in assets under management and has surged 46.5% year to date [8][9] - Invesco Aerospace & Defense ETF (PPA) has a net asset value of $155.40 and gained 36.1% year to date [10] - iShares U.S. Aerospace & Defense ETF (ITA) has net assets worth $12.37 billion and gained 46.6% year to date [11]

Core Insights - Lockheed Martin Corporation (LMT) is collaborating with Google Public Sector to integrate generative AI into its operations, enhancing its capabilities in national security [1][2][3] Group 1: Strategic Collaboration - The partnership aims to incorporate advanced AI tools from Google into Lockheed Martin's in-house and air-gapped systems, providing employees with broader access to data-driven solutions [2] - The integration will adhere to key national security standards, ensuring compliance while leveraging advanced technology [2] Group 2: AI Implementation - Lockheed Martin plans to utilize generative AI to improve workload management, enhancing efficiency and speed in its operations [3] - The company aims to develop secure AI solutions to advance its 21st Century Security Solutions across various sectors, including aerospace, cybersecurity, and space [3] Group 3: Technology Deployment - Initial deployment of the technologies will occur on Lockheed Martin's unclassified on-premise infrastructure, allowing access to Google's AI tools, including Gemini models, on the Google Distributed Cloud [4] Group 4: Company Overview - Lockheed Martin is recognized as one of the largest defense contractors globally, known for manufacturing advanced fighter jets like the F-35 and providing autonomous solutions to the US military [5]

Core Viewpoint - The U.S. government is considering selling up to 48 F-35 stealth fighter jets to Saudi Arabia, which would represent a significant policy shift and could alter the military balance in the Middle East while testing the U.S. commitment to maintaining Israel's military superiority [1][3]. Group 1: Potential Sale Details - Saudi Arabia has expressed interest in purchasing F-35 jets and made a direct request to the U.S. earlier this year [3]. - The U.S. Department of Defense is currently evaluating the potential sale, which has progressed to the level of review by the Secretary of Defense [3]. - The sale would be part of a broader context where the U.S. ensures Israel maintains a military advantage over Arab nations [3]. Group 2: Previous Military Agreements - On May 13, the U.S. and Saudi Arabia signed a military sales agreement valued at nearly $142 billion, marking the largest military sale in history between the two nations [4]. - The agreement includes advanced combat equipment and services from over ten U.S. defense companies across five areas, including air force upgrades and missile defense systems [4]. - The F-35 is noted as the most advanced fighter jet in the U.S. export lineup, featuring stealth technology and multi-role combat capabilities [4].

Core Insights - The defense sector has completed its earnings reports, revealing strong performance and optimistic long-term outlooks for major contractors [1][5]. Group 1: Earnings Performance - Major defense contractors reported earnings beats, with all companies including RTX Corp, Lockheed Martin, Northrop Grumman, and General Dynamics raising their full-year outlooks [5]. - The earnings reactions varied, with RTX gaining 7.7%, Lockheed Martin declining by 3.2%, and Kratos Defense rising by 8.3% [6]. Group 2: Backlogs and Budgets - Backlogs for defense companies are at or near record-high levels, indicating strong future revenue potential and stability [2]. - The total U.S. national defense budget for FY 2024 is $874 billion, with a proposed budget for FY 2026 exceeding $1 trillion, suggesting ample funding for defense contractors [3]. Group 3: Market Dynamics - The ongoing geopolitical tensions, including the Russia-Ukraine conflict and tensions between China and Taiwan, are contributing to a favorable environment for defense contractors [4]. - Despite the overall positive performance of the sector, Lockheed Martin is struggling to maintain its year-to-date performance, with many analysts holding "hold" or worse ratings [8]. Group 4: Investment Opportunities - The iShares U.S. Aerospace & Defense ETF and Global X Defense Tech ETF have seen significant year-to-date gains of 70% and 82%, respectively, providing diversified exposure to the sector [15]. - The drone market is highlighted as a speculative opportunity, with a projected value of $29.8 billion by 2030, indicating potential for growth in this segment [16].

Core Viewpoint - Lockheed Martin is working to expedite the delayed deliveries of new F-16Vs to Taiwan due to supply chain issues affecting the program [1] Group 1 - Lockheed Martin acknowledged that the delivery schedule for F-16Vs to Taiwan has been pushed back [1] - The delays are attributed to ongoing supply chain challenges [1]

Core Insights - Pure-play defense companies have been facing challenging margin conditions, yet recent results from leading defense contractors suggest potential improvement [1][5] - Lockheed Martin, GE Aerospace, and RTX have raised their full-year guidance, indicating a possible turnaround in the defense industry [2][10] Industry Performance - Despite a conducive end-market environment for revenue growth, leading defense contractors have underperformed the market, with RTX being the only notable outperformer due to its commercial aerospace exposure [2][3] - NATO's commitment to increase defense spending to 5% of GDP by 2035, with a minimum of 3.5% annually until then, highlights the potential for increased revenue in the defense sector [2] Margin Challenges - Defense companies are experiencing stagnating or declining margins due to two main issues: supply chain crises stemming from COVID-19 and inflation affecting defense products [5][7] - Ongoing margin pressure is exacerbated by fixed-price development programs and a tougher negotiating stance from the U.S. government, the industry's primary client [7][16] Company-Specific Developments - Lockheed Martin increased its sales guidance midpoint by $250 million to $74.5 billion and operating profit by $50 million to $6.7 billion [11] - GE Aerospace raised its revenue growth expectations to high single-digit growth and increased segment operating profit midpoint by $500 million to $1.25 billion [11] - RTX increased its adjusted operating profit guidance by $163 million to $3.15 billion, driven by higher-margin international deliveries [11][13] Management Insights - GE Aerospace attributed its guidance increase to improved deliveries and material availability [12] - Lockheed Martin's CEO acknowledged the challenges in predicting risks associated with fixed-price development programs [12] - RTX management highlighted the increase in orders for core Raytheon products that can be delivered at higher margins [13] Investment Implications - While there are signs of recovery, the pressures on defense stocks may not have fully abated, suggesting a cautious approach for investors [15] - Companies like GE Aerospace, RTX, and Boeing may offer better exposure to the industry compared to pure-play defense companies [15]

Core Insights - Lockheed Martin is investing $50 million in Saildrone, a sea drone manufacturer, to enhance its surveillance drones with missile capabilities [1] Company Summary - The investment marks the first instance where long-distance autonomous ships will be equipped to carry missiles [1]