Investors Are Betting on Defense Firms
Defense contractors are starting to command attention, as investors are betting that a period of dwindling profit and slumping share prices may be drawing to a close.
Shares of Lockheed Martin Corp. (ticker symbol: LMT), the world’s largest defense company, have risen 28% in the last month, while General Dynamics Corp. (GD) has climbed 35% and Northrop Grumman Corp. (NOC) is up 28%.
Lockheed and Raytheon Co.’s (RTN/B) shares fell by about half last year after they each warned of lower profit while struggling to digest a string of acquisitions prompted by lower U.S. defense spending. Although Raytheon sees little improvement this year, some investors say other contractors may begin to post better results after restructurings take hold.
Even with its shakier 2000 outlook, Raytheon’s shares are up 16% in a month.
“Defense stocks have been overlooked in the last year and right now offer some compelling values,” said Jon Kutler, president of Los Angeles-based investment bank Quarterdeck Investment Partners.
Investors have been fleeing the pricey tech names that had been among the biggest gainers in the last year, with many turning to deep-value stocks such as those in the defense sector.
Lockheed, based in Bethesda, Md., has supplied investors with positive news recently, including a $6.4-billion contract to sell F-16 fighter jets to the United Arab Emirates and the naming of a new chief operating officer to control costs.
“Slowly but surely, things are becoming incrementally more positive,” said Mike Holton, an analyst at T. Rowe Price Associates Inc. in Baltimore, which owns about 8 million shares. “You have significant upside over the next 18 months.”
Shares of Lockheed eased 44 cents Thursday to $21.63 on the New York Stock Exchange. Despite their rally, they’re well off their peak of $46 hit in May.
General Dynamics, the U.S. Navy’s largest shipbuilder, has rebounded after falling 11% last year even as the company avoided most of the problems of its rivals. Company insiders have benefited, as directors purchased more than $19 million in stock in February, when shares were near a 52-week low.
