Core Insights - Industrial stocks have emerged as the top performers of 2025, driven by trends in manufacturing, AI infrastructure, and increased aerospace and defense spending [1][2][3] Group 1: Trends Driving Industrial Stocks - The return of manufacturing to the United States is increasing demand for factory equipment and construction services [2] - The AI boom necessitates substantial physical infrastructure, including backup power systems and climate control, which industrial companies provide [3][4] - Aerospace and defense spending has surged, contributing to a 32% increase in this sector, which constitutes about 25% of the industrials category [3] Group 2: Investment Focus - Fidelity's Select Industrials Portfolio highlights companies that are essential for AI infrastructure, which includes those providing industrial assets for data centers [4][5] - GE Aerospace, making up 7.7% of the portfolio, benefits from the recovery in air travel and the replacement of delayed aircraft purchases [6] - GE Vernova, representing 7.6% of holdings, focuses on power generation equipment, which is increasingly valuable as demand for electricity rises in data centers and industrial facilities [7]

Company Overview - Northrop Grumman is a leading global defense contractor with a diversified portfolio that includes aeronautics, mission systems, defense, and space [5] - The company serves government agencies worldwide, primarily the U.S. Department of Defense and allied defense organizations [8] Financial Performance - Northrop Grumman's market capitalization is $72.6 billion, with a revenue of $40.37 billion and a net income of $3.71 billion for the trailing twelve months (TTM) [3] - The company reported a decline in sales and profits in Q1, primarily due to challenges in its space business, but has maintained its sales guidance of $42 billion to $42.5 billion for the full year, indicating a potential growth of approximately 2% [6][9] - Free cash flow (FCF) guidance for the year is set between $2.85 billion and $3.25 billion, suggesting a growth of around 10% at the lower end of the range [9] Investment Activity - LVM Capital Management increased its stake in Northrop Grumman by 6,237 shares during Q2 2025, bringing its total holding to 39,485 shares valued at $19.74 million [2] - The recent purchase totaled $3.16 million, adjusting the fund's allocation in Northrop Grumman to 2.05% of its reportable assets [2] Stock Performance - Northrop Grumman shares closed at $504.20 on July 7, 2025, reflecting a 15.3% increase over the past year and outperforming the S&P 500 by 3.4 percentage points [7] - The stock is currently trading 7% below its 52-week high, with a dividend yield of 1.84% and a forward price/earnings ratio of 19.9 [7] Backlog and Future Outlook - The company's backlog reached a record $92.8 billion, supported by net awards worth $10.8 billion in Q1, indicating strong demand in the defense sector [10] - Northrop Grumman anticipates its annual free cash flow to exceed $3.3 billion by 2027, with a significant portion expected to be returned to shareholders as dividends [10]