Two Aerospace and Defense Picks for Geopolitical Uncertainty

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If there’s one thing investors can be certain of, it’s that the financial markets hate uncertainty. Geopolitical turmoil can wreak havoc on large-cap stocks generally, but there’s one sector that could actually benefit when tensions flare.

Recent events serve as a harsh reminder that clashes can erupt without warning and at any given moment. This puts the aerospace and defense sector into sharp focus and could signal buying opportunities for responsive investors.

At the same time, the idea isn’t to jump headfirst into a trade without taking the time to conduct your due diligence on aerospace and defense stocks. In any sector, there are plenty of mediocre businesses and only a few real standouts. With a selective mindset and attention to value and income generation, let’s take a closer look at two standby picks for troubling times.

RTX Corporation (NYSE:RTX)

You probably know RTX Corporation better as Raytheon Technologies, an American aerospace and defense giant that’s been around in one form or another since the 1930s. The company is a go-to source for defense technology for the U.S. government, and you’d be hard-pressed to find a better-capitalized client than Uncle Sam.

Actually, the U.S. military isn’t the only government entity RTX serves. This month, Raytheon U.K. is set to receive, test and integrate a high-energy laser weapon system. This system is designed to “stop aerial threats such as unmanned aerial vehicles.”

But again, RTX’s bread and butter is its contracts with the U.S. government. Just in the past month, RTX has announced a number of value-added developments related to the American armed forces:

  • A contract from the National Oceanic and Atmospheric Administration to develop and optimize America’s water-resources prediction capabilities
  • Successful operation of a “solid-state circuit breaker to support hybrid-electric propulsion systems in future aircraft” under a NASA contract
  • A contract to develop an “air-breathing propulsion demonstration program that uses a novel rotating detonation engine” for the Defense Advanced Research Projects Agency
  • A $39 million award from the Air Force to develop and integrate “Battle Management Command and Control software into a prototype for air base air defense”
  • Selection by Boeing (NYSE:BA) to collaborate on the X-66A jet flight demonstrator, which is part of NASA’s Sustainable Flight Demonstrator project

As you can see, RTX has plenty of business from the public sector. Yet, the company has been completely abandoned on Wall Street, with RTX stock losing significant value year-to-date.

As of this past weekend, RTX has a not-too-lofty P/E ratio of 18.51 and paid a forward annual dividend yield of 3.38%. Thus, there’s something here to appeal to value seekers and income-focused investors alike. In addition, RTX stock’s five-year monthly beta of 0.73 means it has historically tended to move more slowly than the S&P 500; this should appeal to volatility-averse investors at a time when the world feels quite volatile.

Lockheed Martin (NYSE:LMT)

Like RTX stock, LMT stock is down for the year even though Lockheed Martin has lucrative deals with multiple governments. First of all, Lockheed Martin recently delivered an F-35A Lightning II aircraft to the Royal Danish Air Force and announced a $746.3 million agreement to support Switzerland’s F-35 jet program. Moreover, as far as American military arrangements are concerned, Lockheed Martin is staying extremely busy:

  • A $19.7 million contract to furnish an auxiliary power unit to support the V-22 Osprey aircraft for the U.S. Navy
  • A $163.3 million deal to provide components and services for F135 propulsion systems for the Air Force, Marine Corps and other military entities
  • A $175.9 million agreement awarded by the Naval Air Systems Command to support the delivery of F-35 jets
  • A $22.3 million arrangement to “manufacture and deliver an air-to-ground missile system” for the Army Contracting Command, Redstone Arsenal, Alabama.
  • A $305.6 million contract to support the production of F135 propulsion systems for the Navy, Air Force, Marine Corps and other entities.
  • Last but certainly not least, a $1.2 billion contract awarded by Strategic Systems Programs, Washington, D.C., to provide “production and deployed systems support” for a Trident II missile program.

Like RTX, Lockheed Martin has been forsaken by the financial markets, and its share price is down for the year. Hence, there’s a strong value proposition here as Lockheed Martin’s P/E ratio of 14.77 looks reasonable; meanwhile, the company offers a decent dividend yield of 2.97% per year.

Thus, whether you’re interested in RTX stock, LMT stock or both, you’re encouraged to conduct your due diligence on this pair of picks in the aerospace and defense sector.