In Portfolio Spotlight Series 2 – I will be going through each holding in my portfolio v2.0 and the selection criteria for its entry. Stocks are either
1. Great companies with consistent earnings, free csh flow, strong competitive moats. These are core holdings.
2. Potential growth companies with breakout earnings, growing competitive moats. These are holdings which typically are kept within 5% of the portfolio.
3. Geographical / sector diversifications. These are meant for diversification purpose and are kept within 5% if they are from emerging markets (e.g. China/HK) .
Next up in Portfolio Spotlight Series 2 is LMT. It currently occupies 16% of my portfolio and I have strong conviction in this stock mid to long-term.
Headquartered in Bethesda, Maryland, Lockheed Martin Corporation is a security and aerospace company. It operates through four segments. Aeronautics segment is engaged in the research, design, development, manufacture, support and upgrade of military aircraft, including combat and air mobility aircraft, unmanned air vehicles and related technologies. Missiles and Fire Control segment provides air and missile defense systems; fire control systems; manned and unmanned ground vehicles, and energy management solutions. Rotary and Mission Systems segment provides design, manufacture, service and support for various military and commercial helicopters, surface ships, sea and land-based missile defense systems, radar systems, sea and air-based mission and combat systems, command and control mission solutions, cyber solutions, and simulation and training solutions. Space segment is engaged in the research and development, design, engineering and production of satellites, missile systems and space transportation systems.
1)Consistent Revenue Growth
2)Consistent Free Cash Flow
LMT has been having consistent free cash flow for the past 5 years
3)Market Cap Growth
As of September 2021 Lockheed Martin has a market cap of $98.58 Billion. This makes Lockheed Martin the world’s 159th most valuable company by market cap according to our data.
4)Consistent Net Income Multiple
LMT has had consistent net income multiple. This indicates a management team which is efficient in handling its bottom line. A great management team is very important!
5) Future growth
This last factor is fundamental analysis. Does LMT have future market growth driver(s) ? The answer is yes !
Most of LMT future growth drivers will leverage on
1) Ramping Geopolitical Tensions
Global geopolitical tensions have been ramping up even before the current pandemic. With violent protests springing up all around the world, global instability appears to be on the rise. The US-China relationship, in particular, is growing even more unstable as these two nations’ interests continue to diverge.
The trade war, Hong Kong protests, and coronavirus outbreaks are just a few of the major events putting the US-China relationship under strain. Many experts even think that the US and China are headed towards a Cold War. Such a scenario will put Lockheed Martin in an increasingly vital position.
2) Proposed Acquisition of rocket engine maker Aerojet Rocketdyne
LMT’s proposed acquisition of rocket engine maker Aerojet Rocketdyne will only serve to increase its moat and competitiveness against its competitors such as Northrop Grumman’s merger with Orbital ATK. There are signs that the merger may be approved by FTC (Federal Trade Commission) with influence by Congress.
3) Fairly priced PE
PE vs Industry: LMT is good value based on its PE Ratio (13.8x) compared to the US Aerospace & Defense industry average (21.9x).