When Action Alerts PLUS holding Lockheed Martin (LMT) filed an 8K last week that updated its expectations for F-35 deliveries this year to 97 down from its prior forecast of 100-120 jets, we discussed the favorable medium to long-term prospects given the US government's purchase of 2,456 F-35 aircraft and Lockheed's manufacturing capacity of around 156 per year.

We also shared our thinking this was largely a timing issue, but we would want to digest comments from Jim Taiclet, Lockheed's Chairman and CEO, this week at Morgan Stanley's 11th Annual Laguna Conference before making a move with the shares.

Ahead of Taiclet's presentation on Thursday, Lockheed announced an $841.5 million contract modification for the US Navy, a $311.98 million win to upgrade Stinger missiles for the US Army, and other smaller sized program wins. The US also approved a sale of up to 25 F-35 fighters and related equipment, potentially $5.06 billion, to the South Korean military to help bolster US allies amid increasing North Korean and Chinese aggression. All of those wins add to Lockheed's already growing backlog that gives the company as well as investors like us ample visibility.

Turning to Taiclet's presentation, it spoke to the company's record backlog and wins we've shared with you suggest the company will post another strong backlog figure when it reports the current quarter. While Lockheed originally guided for a return to growth in 2024 with a low-single digit figure, during the presentation it was shared that the demand signal in its backlog suggests it could be stronger than that.

On the topic of F-35 deliveries, Lockheed shared that even though it will deliver 97 units this year, it will still operate at a build rate of 150-156, which suggests the company could deliver more than 150 units in 2024.

This should sound familiar to members as it's the same strategy employed by Applied Materials (AMAT) and Deere & Co. (DE) last year when they were contending with supply chain issues.

For Lockheed, the F-35 issue is also one around late hardware deliveries that dramatically. compressed software integration and testing. As these hurdles are past, we would expect Lockheed's deliveries to follow a similar path like the one posted by Deere as its issues subsided.

Finally, this morning China announced it will apply sanctions to Lockheed as well as defense contractor Northrop Grumman (NOC) for providing weapons to Taiwan. First off, total Asia Pacific accounted for ~8% of Lockheed's total revenue in 2022 and 8.5% in 1H 2023. With Lockheed shipping to South Korea, Taiwan and others in the region, its exposure to China is likely to be rather minuscule, especially after China put Lockheed and others on an "unreliable entities list" back in February that banned all trade with China's government. This suggests today's announcement is more bark than bite.

While we may be a bit early in doing so, we are going use the September drop in LMT shares to round out our position in this defense contractor. Our price target on LMT shares remains $520 vs. the Wall Street consensus of $505.

After you receive this Alert, we will buy 30 shares of Lockheed Martin at or near $427. Following the trade, LMT shares will account for roughly 3.35% of the portfolio.

(Please note that we are looking to execute these trades at or near the share price mentioned above. Once the trade is completed, subscribers can see the trade's executed price here. Be sure to toggle the chart to sort by Purchase Date.)