LMT, Lockheed Martin Corp. and GD, General Dynamics

lmt dec 20 2016

Trump has promised to make the US armed forces both the best and the most efficient in the World. Lockheed is the maker of the F-35 and as such it is the recipient of the single most costly military order ever. There are 3 versions of this fighter, one for the army, one for the navy and one for the air force. They are to replace the F-16, someday. They are behind and over budget, do not perform as designed according to some and already some foreign purchasers have cancelled orders (Australia). Others, like the British are concerned that their new class of aircraft carriers (the Queen E class), which do not have catapults, may have to be redesigned or retrofitted. Even with an expected production run of about 4,500 these toys will still cost north of $160 mln. a piece.

The chart is hard to read as there are no distinct or obvious sub-patterns that are readily recognisable. Nevertheless our gut tells us that we are probable at the end of a 5-wave sequence. The fundamentals also suggest that we are overdone to the upside for quite some time now;

LMT dec 20 2016 Morningstar

is clearly outperforming both the Aerospace & Defense stocks as well as the S&P, both by a very large margin! But there is really nothing in this company’s key financial ratios to warrant this outperformance.  So we will have a look at that other fighter manufacturer, General Dynamics (builder of the F-16) to see if it confirms that the stock might be ahead of itself;

gd dec 20 2016

Fortunately this one presents a much more readable picture; the only ambiguity might be where the 4th wave ended, that is if there was a triangle or not. Probable there wasn’t one. In any event both LMT and should be exited or even sold short in our opinion.