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Lockheed Martin Stock Is a Case Study for Buying on the Dip

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Lockheed Martin (NYSE:LMT) hit an all-time high of $363 in mid-February. Since then, LMT stock has retreated by 18% through Jul. 5.

If ever there was a stock investors should buy on the dip, Lockheed Martin might be a case study you can’t ignore. Here’s why.

The Corporate Marriage

Lockheed Martin went public in March 1995, a merger between two of America’s largest defense contractors at the time — Lockheed and Martin Marietta — whose combination created an entity with $23 billion in revenue and a market cap more than $10 billion.

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Lockheed, based in California, moved its headquarters to Martin Marietta’s in Bethesda, Maryland, in what the company calls “a merger of equals.”

Under the terms of the deal, Lockheed shareholders received 1.63 shares of the new company for each one held in Lockheed. Martin Marietta shareholders got shares in Lockheed Martin on a one-for-one basis.

The gesture of moving across the country to Martin Marietta’s headquarters is evidence Lockheed executives truly believed it was a merger of equals. 

Lockheed shareholders have been handsomely rewarded in the 22 years since. For every 100 Lockheed shares owned before the merger, if you held for the entire period, you would have an annualized total return of 11.8%, almost double the S&P 500.

The Best Part of Its Strong Returns

I can remember as a young kid flying down to Palm Beach at March break to visit my grandparents on an Eastern Airlines L10-11. At the time, I thought it was the coolest plane going — until Lockheed Martin stopped making them in 1983, exiting the commercial aircraft business.

Of course, Lockheed Martin’s carried on and is now run by Marilyn Hewson, a former industrial engineer, who’s worked at the company for more than 35 years.

Hewson is one of only 25 women running S&P 500 companies. Recently, I recommended seven women-led S&P 500 companies to own for the long haul. Hewson didn’t make my list, but that had nothing to do with her skills or the quality of LMT stock. It had more to do with my aversion to defense-related companies. Otherwise, she’d have been on my list.

Buy LMT Stock on the Dip

In April, LMT stock dropped after the company released its Q1 2018 results. While it beat expectations, investors thought it would up its annual cash flow guidance above $3 billion, its outlook from the previous quarter.

“There could be some modest disappointment that the cash guidance has not been raised, but it is early in the year and cash is trickier to predict,” Robert Stallard of Vertical Research stated at the time.

From my casual observation, everything about Lockheed Martin’s first quarter report was pristine good.

Here’s the rub.

Since Lockheed Corporation hooked up with Martin Marietta in 1995, its stock has had three significant corrections of more than 10%. The first was in late 1999, the second in late 2008 and early 2009, and the latest in 2018.

Three in 22 years.

Its financials and business are both solid as a rock. So the question becomes: how much more downside does LMT stock have?

History shows that it doesn’t stay down for very long. We’re in month five of a downturn. I’m no technical analyst, but eventually, investors are going to rotate back into it. 

It might have another $30 in downside left in it — that’s assuming the economy doesn’t go to heck as a result of the trade war — but long term, its 2.6% yield is safer than most.

If you can handle owning a so-called “sin” stock and you like steady dividend payments and capital appreciation, Lockheed Martin ought to be at or near the top of your buy list.

As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.

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