In 2022, Indian Prime Minister Narendra Modi famously told his Russian counterpart Vladimir Putin that this was “not an era of war.” With the benefit of hindsight, just the opposite appears to be the case, and even India had a brief but significant armed conflict with its neighbor Pakistan last year. The Russia-Ukraine war, or “special military operations” as Putin likes to call it, has been going on for four years as the Middle East flares up again after a joint US-Israeli strike killed Iranian Supreme Leader Ali Hosseini Khamenei over the weekend. There are “mini war zones” around the world, and President Trump has naturally taken dubious credit for ending many of these wars, including between Armenia and Azerbaijan and Thailand and Cambodia.
We are reasonably certain that geopolitical tensions will remain high for the foreseeable future. Given this background, I see Lockheed Martin (LMT) and Agnico Eagle Mines (AEM) as two stocks that could benefit from heightened geopolitical pressures.
Global defense spending is expected to rise significantly over the next decade, and last year, NATO members (except Spain) pledged to invest 5% of their respective GDPs over the next 10 years. While the nine NATO members have not met the 2% target the alliance set in 2014, given the growing threat from Russia and the growing recognition among member states of the hitherto peaceful region that it cannot hand over security to the US, at least not entirely.
US allies in the Middle East are also increasing defense spending. India, the world’s largest arms importer, has also increased its spending, as I predicted earlier. While most of it may not yet have reached US companies, it may require purchases from the US to meet the massive (and most likely impossible) $500 billion import commitment as part of the trade deal.
Lockheed shares have risen sharply since I covered the stock last July and still have a dividend yield of more than 2%. Its valuation multiple has widened during the rally, and the stock trades at a forward price-to-earnings (P/E) multiple of more than 22x, which is above the historical average. However, given the era we live in, defensive stocks have seen a resurgence, and value pricing appears to be here to stay.
