Turtleneck-Decked Canuck Rednecks Forgo Paychecks, Deliver Tyrants Train-Wreck Bodycheck (LMT)

Today’s trade affords you a chance to snatch a 4900% return on a ten cent debit.

It’s a straightforward military-industrial bombing campaign that offers tight spreads and a creative option pairing to achieve that result.

We believe you’ll be impressed.

But first…

We’re at war.

Everywhere you turn, folks are girding their loins, grabbing their bump-stocks, drinking the mead and heading to the front.

Ukraine.

Taiwan.

Yemen.

Del Rio.

Ottawa.

It’s a shemittah year, after all.

Part of it is fuelled by genuine geopolitical tension.

But a great deal more is sourced by a corporate agenda that’s working hand in glove with corrupt politicians – those who make a fat wad of cash every time new orders go out to Raytheon, Boeing or Rockwell.

Or Lockheed Martin?

Certainly.

Lockheed Martin (LMT) operates in the highly regulated defense/aerospace sector, where large contracts are dominated by just a handful of players.

We don’t like the outlook for LMT – even on the eve of potential flare-ups in Mitteleuropa and the Taiwan Strait.

And it appears a good deal of LMT investors are with us.

After announcing marginal earnings and sales beats one week ago (January 25), the stock popped – then staggered.

It could be because buyers are all in.

Or it could be that LMT’s planned acquisition of Aerojet Rocketdyne, already a year in the making, appears to have fallen through.

And that’s disappointing.

Fundamentals

No problem here.

LMT has an order book that secures the vast majority of her earnings for the next ten years (based mostly on the F-35 Joint Strike Fighter, THAAD missile defense technology and Sikorsky helicopters), and that keeps the fundamentals in check, more or less.

At the same time…

• P/E is 17.01 (though her historical average is roughly half that),
• Dividend Yield is a respectable 2.89%, while
• P/B is a goiter-like 9.65 (!), and
• EPS growth for the next five years is estimated at an anemic 4.80%, according to consensus estimates.

All of which militates against further significant price gains, in our humble opinion.

And perhaps especially so, because the company was hoping to gain important hypersonic missile technology from the Aerojet Rocketdyne acquisition.

Oh well…

The market for hypersonic weapons is enormous and growing exponentially.

LMT will be in trouble if it doesn’t participate.

News of the deal unraveling is now gaining traction.

Now look here –

Technically…

1. The stock appears ready for a return to the bunched moving averages in the 360/365 range (in black).  Why?  
2. First, because the move to new highs over the last three months was exaggerated.  A 21% rise for a stock of this nature just doesn’t happen in that time frame (in red).  Again, the drums of war are pounding, we appreciate that.  But there are limits as to how far a defense stock can be hyped – regardless of the news media’s efforts.
3. We note, too, that volumes built dramatically toward the top (in purple), an indication that the smart money may have been using the run higher to cash out (several hedge funds did just that, according to the latest 13F filings).
4. The move also covered an important gap that required filling after last quarter’s earnings report (in blue).  With that technical obstacle out of the way, the stock is now poised to continue its previous decline.
5. Current prices, just below $400, matched the stock’s two prior tops in the summers of 2020 and 2021 (not seen on the chart).  In other words, we’re witnessing a potential triple top in formation.
6. Finally, RSI has three times blown kisses at the overbought 80 level (in green), and
7. MACD is now rolling lower.

All of which means we gotta trade it.

In speculative fashion.

Like this –

A Jew and his Gold recommends you consider selling the LMT February 18^th 385/390 CALL spread* for a credit of $2.10 (7.20/5.10) and buy the LMT February 18^th 385/380 PUT spread** for $2.20 (5.60/3.40).  Total debit is $0.10.

[*Sell the 385 Call and but the 390 CALL.  **Buy the 385 PUT and sell the 380 PUT.]

Rationale: our max gain is $4.90 on an ante of just a dime – 4900%.

Max loss is $5.10, should the stock climb above 390 by expiry.

As to expiry – it’s just over two weeks away – and that’s why we’re labeling this one SPECULATIVE.

Time is ticking, and we need a quick descent to cash in fully.

How far…?

Our breakeven arrives at $384.90, just six tenths of one percent below current price (i.e., zilch).

Full profits are pocketed with a decline of just 1.9%!

And that’s downright (speculatively) spectacular.

The Holy One, Blessed Be He, sees and knows all.  May He guide and protect all good Jews and Noahides through these dangerous times.

Many happy returns!

Matt McAbby

Follow @HughLOHaynew