The Pentagon just agreed to buy fighter jets for ten years. Congress hasn't voted the money yet. Investors cheered anyway. Lockheed Martin (LMT) closed up 7% on Thursday, Oct. 22, at $589.91. The S&P 500 fell 1.21% the same day.
The deal is a framework, the step before a firm contract. The U.S. military would get 850 F-35 Lightning II jets, and allies would get hundreds more, plus spare parts. It sets Lockheed's pace at 156 jets a year, and the company is putting $7 billion of its own into the line. The Journal's Drew FitzGerald calls the pact a calculated risk for the Pentagon. Turning it into a contract would likely take tens of billions of dollars that Congress hasn't set aside. The missile frameworks signed earlier this year led to more than $100 billion of contracts, and much of that still waits on Congress. Chief executive Jim Taiclet said the deal “strengthens the way we can plan and invest.” Lockheed's backlog hit a record $292 billion, and quarterly sales grew 11% to $20.7 billion.
Big order books, slow cash
Other contractors told the same story this week. RTX (RTX) raised its outlook for the third time this year. More than $81 billion of new orders in the quarter pushed its backlog to a record $340 billion. It's on track to build more than 400 Tomahawk missiles this year. GE Aerospace (GE) raised its outlook too, and its orders jumped 49%. Its stock still fell 3.7% on Tuesday. The company can't get parts fast enough, so orders are taking longer than the usual six to nine months to turn into sales. “We are anxious to convert that backlog into revenue,” finance chief Rahul Ghai said. GE Aerospace makes jet engines. It isn't GE Vernova, the power company.
The small names haven't shared the cheer. In Wednesday's Heard on the Street, Jinjoo Lee notes that an equal-weight defense fund is down 21% since the Iran war began. A fund that leans on giants like RTX and Boeing is down 15%. She points to a wave of new defense listings, worry about the budget, and the Nov. 3 midterms. About $350 billion of the $1.5 trillion budget request has to pass through a special budget bill. A tighter budget might buy more cheap drones and fewer F-35s, one analyst says. Lee thinks it may be a time to buy selectively. That's her view, not our call.
Our read
This is Investments/Risk (IN04). A backlog is a promise, not cash. Lockheed's $292 billion is real demand, but Congress pays for defense one year at a time. The story also carries a line every dividend investor should know. The president has threatened to use the government's contracting power to curb buybacks and dividends at companies that miss performance targets. When the government is your biggest customer, it can get a say in your payout. We hold defense at weight. Lockheed is in 29 books, General Dynamics (GD) and RTX in 19 each, Northrop Grumman (NOC) in 16, L3Harris (LHX) in 11 and GE Aerospace in 3. Nothing added.
Now to your own account. If your 401(k) or IRA holds a defense or aerospace fund, open its fact sheet this week. Look for two lines. One tells you if it's equal-weight or tilted to the giants. The other shows how much sits in its top five names. That choice helps explain the gap between down 15% and down 21% since the war began. If the answer surprises you, bring it to your next review. You check an umbrella's ribs on a dry day, not in the downpour.