Defense Stock Face-Off: Lockheed Martin vs. Howmet Aerospace -- Which Is the Better Buy Right Now?

Lockheed Martin and Howmet Aerospace both benefited from higher defense spending tied to the conflict in Iran, with shares up roughly 21% to 25% year to date. Howmet posted 2025 revenue of $8.3B (+11%) and EPS of $3.71 (+32%), while Lockheed generated $75B in revenue (+6%), held a record $194B backlog, and guided 2026 EPS to $29.35-$30.25. The article argues Lockheed is the better buy because of its ~2.2% dividend yield, 23-year dividend growth streak, lower forward P/E of 20.6, and more diversified defense franchise.

Analysis

The market is pricing two different defense exposures: HWM is the cleaner growth proxy, while LMT is the higher-quality cash-flow compounder with embedded downside protection. The second-order effect is that a prolonged munitions restocking cycle helps LMT’s missile and fire-control franchise more than the broader defense tape, while HWM benefits most if aerospace production rates stay elevated and spare-part intensity remains high; that makes HWM more cyclical to platform utilization and commercial/military build schedules.

The key risk for HWM is multiple compression: at a premium growth valuation, any moderation in engine-part demand or margin normalization can erase several quarters of EPS growth in a single rerating. By contrast, LMT’s backlog and dividend create a floor, but the stock’s upside is constrained by execution risk on large programs and the possibility that budget headlines fade before cash conversion visibly improves. The time horizon matters: HWM can re-rate quickly over days to weeks on earnings beats, while LMT is more of a 6–18 month thesis tied to appropriations, replenishment orders, and backlog burn.

Consensus is likely underestimating how much defense spending crowd-out can benefit primes with scale and procurement leverage. If the 2027 budget path keeps expanding, suppliers with mission-critical parts may actually outperform the prime contractors on operating leverage, but only if they avoid capacity bottlenecks; that favors HWM in a strong demand environment, even if LMT remains the lower-risk total-return name. The market may also be underpricing how quickly dividend-hungry capital rotates into LMT once investors seek defense exposure with yield after the initial geopolitical spike fades.

Key Decisions for Investors

• Long LMT as a 6–12 month defensive compounder; use pullbacks to build, targeting mid-teens upside with low-teens downside given the 2%+ yield and backlog support.
• Short/underweight HWM on any post-earnings strength or geopolitical pop; valuation leaves little room for execution misses, with 15–20% downside possible if growth decelerates even modestly.
• Pair trade: long LMT / short HWM to isolate quality-and-yield versus multiple risk; best if defense headlines persist but investors rotate toward lower-volatility income names.
• For higher beta exposure, buy HWM on dips only after confirmation that spare-parts revenue and margin guidance remain accelerating; otherwise wait for a 10%+ retracement before initiating.
• If defense spending headlines intensify again, consider short-dated call spreads in LMT rather than stock to capture sentiment upside while limiting exposure to any policy-driven fade.