Lockheed’s future prospects could be good for your future profits

SUNDAY, FEB. 27, 2011

When investing for your future, you should think about … the future. Your goal is to assemble a team of high-quality “core stocks” that will stand the test of time. Consider Lockheed Martin (NYSE: LMT).

Why? Well, Lockheed recently announced fourth-quarter net profits up an astounding 26 percent over 2009 levels, and it’s not slowing down. The company booked $20.5 billion in new business in the quarter, too.

Meanwhile, a key reason to own Lockheed Martin is its plan to build the plane that U.S. Joint Chiefs Chairman Adm. Michael Mullen says will be “the last manned fighter” jet ever to be built: the F-35 Lightning II.

Israel has announced its desire to buy $1.8 billion worth of F-35s, a number that may eventually swell to $15.2 billion worth of F-35 hardware and ancillary services. Canada plans to buy 65 jets for $9 billion. Meanwhile, concern over China’s new J-20 fighter design has other Asian nations, such as Japan, South Korea and Singapore, very interested in the F-35.

The moral of this story? Patience, grasshopper. Don’t fret Pentagon budget cuts. Lockheed’s only getting better with time. This company has a hand in everything President Eisenhower ever warned you about the military-industrial complex – and makes a nice profit doing it. (The Fool owns shares of Lockheed Martin.)

Ask the Fool

Q: Can I lose all of my money in a mutual fund? – G.K., Norwalk, Conn.

A: While some stocks can and do fall to zero, mutual funds rarely do, since they contain many different holdings. (Most stocks aren’t huge gambles, though: If you’ve been keeping up with your companies’ financial reports and news coverage, you’ll likely spot red flags long before a company goes out of business.)

Still, many funds can significantly underperform the overall market. If you don’t have faith in your fund’s management and don’t expect it to perform well in the future, you should sell, taking the loss. Why leave money there, either stagnant or falling in value, when it could be growing elsewhere?

Just as there are good and bad stocks, there are good and bad funds. We’ve recommended a bunch of top-notch, low-fee funds, as well as some model portfolios, in our “Rule Your Retirement” newsletter. Try it for free at

Q. Does a lower stock price signify a smaller company? – E.M., Goshen, Ind.

A: Not at all. You must factor in the number of existing shares to get an idea of a company’s size. If the Free Range Onion Co. (Ticker: BULBZ) has a stock price of $10, for example, and 1 billion shares outstanding, its market price (“market capitalization,” or “market cap,” to use Wall Street lingo) is $10 billion. If it has just 200 million shares outstanding, its market cap is $2 billion.

For some real-life examples, look at General Electric, Safeway and Ethan Allen. All were recently trading for around $21 per share, but their market caps were, respectively, $219 billion, $8 billion and $640 million.

My dumbest investment

One of my dumbest investments was in Friedman’s, at one time the third-largest jewelry chain in the U.S. The stock had tanked when an investigation by the Securities and Exchange Commission (SEC) was announced. I figured the investigation was informal and the stock was cheap, but the price just kept falling after I bought, and the company eventually filed for bankruptcy protection, wiping out my investment. I learned to flee from SEC investigations. It’s like turning on the lights in the kitchen at night and finding a cockroach: There’s always more than one cockroach lurking somewhere. – Felix, Singapore

The Fool responds: It can be tempting to snap up shares of a stock that crashes, but remember that stocks often crash for good reasons. Just because a stock is down, say, 80 percent, doesn’t mean it won’t be down 90 percent by next week.

Some SEC investigations don’t go anywhere, but it’s much safer to stick with healthy and growing companies rather than troubled ones, unless you understand their troubles very well. In 2008, Friedman’s CEO was convicted of securities fraud, mail fraud and participation in accounting fraud.


There is one comment on this story »