Lockheed Martin (LMT), Raytheon (RTN), Northrop Grumman (NOC) and other defense stocks fell Tuesday, as the sector continues a sell-off that began last week.
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Lockheed's shares also tumbled last week, after the F-35 maker failed to raise its cash flow guidance when it reported first-quarter results. That weighed on hopes for bigger dividends while the 10-year Treasury yield topped 3% for the first time since 2014, making dividend-paying stocks are less attractive relative to debt.
On Tuesday the two-year yield rose as high as 2.52%, the highest since the month before Lehman Bros. went bankrupt before pulling back 2.50%. Meanwhile, the 10-year yield climbed to 2.96%.
Defense stocks had been setting up bases and nearing buy range heading into earnings last week, but now those bases have been wiped out.
Lockheed shares tumbled 3.9% to close at 308.46 on the stock market today, despite receiving a $1.4 billion contract late Monday from the Pentagon and international customers for F-35 sustainment.
But Edward Jones reiterated its buy rating on Lockheed in a note late Tuesday, saying geopolitical tensions remain high while militaries still need to modernize.
Defense stocks such as Lockheed have likely fallen recently because values were historically high, and earnings "were not pristine enough for investors," Edward Jones added. Additionally, there could be a
reaction to the easing of tensions on the Korean Peninsula.
Northrop fell 4.6% to its lowest since January. While the defense contractor's Q1 results beat Wall Street estimates last week, it didn't raise its cash flow guidance and said it dropped out of the running for the Air Force's GPS 3 satellites contract.
Surveillance equipment developer L-3 Technologies (LLL) sank 4.5% to the lowest since November, and shipbuilder Huntinton Ingalls (HII) lost 3.5%.
Meanwhile other defense stocks saw less dramatic move. Boeing (BA) eased 1.2%. Raytheon shares fell 1.4%. Last week, the maker of the Patriot missile defense system reported strong Q1 earnings and raised its full year outlook.
The leaders from North and South Korea met Friday to discuss denuclearization and ending the Korean War, and on Tuesday both sides started dismantling loudspeakers used to broadcast propaganda messages across the North Korean border.
But Raytheon still sees strong antimissile defense demand despite the peace talks. CFO Toby O'Brien told IBD that he sees demand across all regions of the world and doesn't see that slowing down any time soon with regional customers continuing to modernize their arsenals with increased demand for new capabilities.
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The post Lockheed, Northrop Lead Defense Stock Dive As Sector Woes Continue appeared first on Investor's Business Daily.
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