Buy Great Companies Ahead of Growing Earnings

Big companies can often go in and out of favor with the market. But companies that underperform tend to catch up over time. And investors who have been disappointed with such a company will be happy when that outperformance occurs.

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  • Many stocks are still underperforming. In a market that’s driven by news about AI developments, that’s no surprise. But it also means that today’s buyers can get a relative value in non-AI parts of the market.

    Defense contractors are one such play. These companies are set to benefit from increased government spending on defense. Many countries have announced increased spending over the past few years, but the real ramp up in spending is just getting started.

    That could be great for a company like Lockheed Martin (LMT). The defense contractor has now traded flat over the past year.

    As a result, shares now trade at 18 times earnings, a discount to the market. And with increased earnings on the horizon, shares may soon become a catch up trade.

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  • Action to take: Investors may like shares at current prices, or on any drop lower. Lockheed also pays a 2.7% dividend at current prices.

    For traders, the September $485 calls, last trading for about $9.50, could see mid-to-high double-digit returns in the coming months.

     

    Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any company mentioned in this article.

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