As the largest defense contractor in the United States, Lockheed Martin (NYSE: LMT) is generally held to be ‘evergreen’ — a reliable investment that is almost always reliable and occasionally yields great returns.
That has certainly been the case throughout most of 2024 — but in the last two months, one of the military-industrial complex’s most trusty workhorses has seen a dramatic decrease in market capitalization.
On October 20, LMT stock reached its all-time high (ATH) of $614.61 — by press time, the price of an LMT share had receded to just $482.06. This 21.56% drop equates to a staggering $30 billion reduction in market capitalization over a 60-day period— down to $114.47 billion from $145.83 billion at the time of the ATH LMT stock price, as per data from CMC retrieved by Finbold on December 19.
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While Lockheed stock is still up 5.88% on a year-to-date (YTD) basis, this latest move to the downside is certainly worrying and has left many investors wondering if further selling pressure will follow. Let’s take a closer look at the situation.
Why LMT stock price has crashed
Since the October high, several factors have exerted downward pressure on LMT shares. First and foremost, one should never discount the chance that profit-taking is occurring on a massive scale — particularly at an ATH. Secondly, the re-election of Donald Trump to the office of the presidency has had a negative effect on Lockheed.
Surprisingly enough, Trump isn’t the centerpiece of the issue — one of his key allies, Tesla (NASDAQ: TSLA) chief executive officer (CEO) Elon Musk is. Seen as an increasingly influential figure in Washington, Musk, already a leading voice when it comes to technology, has repeatedly suggested that manned aircraft — one of Lockheed’s cornerstones, are outdated.
The tech mogul has pointed to recent conflicts to highlight the increasing use of drone swarms as a superior option — and if his analysis holds water, Lockheed’s business model could be in trouble. Worse still, Musk, who is set to lead the Department of Government Efficiency (DOGE) with Vivek Ramaswamy, has flirted with the idea of canceling Lockheed’s notoriously expensive F-35 jet program altogether.
Finally, although the company’s Q3 2024 earnings report released on October 22 was a beat in terms of earnings per share (EPS), revenues came in below expectations — and the price of Lockheed shares has been on a consistent downward trajectory since.
Why the LMT dip might be temporary
There’s no denying that this drop was substantial — but the current atmosphere of fear could very well be overblown. We tend to think of markets, especially in the United States, as particularly free.
However, the numerous instances where the government has bailed out what it sees as critical industries — banking post-2008, or more recently semiconductors like in the case of Intel (NASDAQ: INTC) aren’t flukes.
For better or worse, Lockheed is a business of national importance — a key piece of the puzzle that has helped maintain U.S. dominance in terms of cutting-edge military technology for decades. There is a level of significance at play here that is hard to translate directly into financial metrics.
In a slightly less broad sense, the defense contractor also has numerous multi-year contracts in place and is a linchpin in sustaining the operational readiness and modernization of U.S. and allied military forces globally.
Lastly, but most importantly, DOGE is an advisory agency — one which will not have the ability to prescribe action — only suggest it. There is already a body with a similar purpose — the Government Accountability Office (GAO), whose findings are routinely ignored.
It’s an open question as to how effective this new body will be — and with little in the way of actual legal prerogatives, Musk and Ramaswamy will face an uphill battle in taming the Pentagon’s spending.
Featured image via Shutterstock
