Trump's Race to Space Superiority: 2 Rocket Stocks Ready to Take Off in 2026

Lockheed Martin reported Q3 revenue of $18.6 billion (+9% YoY) and EPS of $6.95 (+2%), with space revenue rising to $3.36 billion and space operating profit up 22% to $331 million; backlog stands at $179.1 billion (including $38.4 billion in space), and management increased the buyback authorization by $2 billion to $9.1 billion and raised the quarterly dividend 5% to $3.45. Leidos posted record Q3 revenue of $4.5 billion (+7% YoY) and EPS of $2.82 (+5%), secured a $760 million NASA subcontract tied to LEO/Artemis work, raised its quarterly dividend to $0.43, and is acquiring ENTRUST Solutions for $2.4 billion, positioning both firms to benefit from a White House commercial-first space procurement push accelerating Artemis timelines.

Analysis

Market structure: The White House "commercial-first" order is a net positive for prime contractors (Lockheed Martin LMT) that own scale and for systems integrators/service providers (Leidos LDOS) that can convert O&M into recurring revenue. LMT’s $179.1B backlog (including $38.4B space) and 22% YoY jump in space operating profit mean sustained pricing power on large programs, while as-a-service procurement favors smaller, capital-light vendors and recurring-revenue specialists over pure hardware OEMs.

Risk assessment: Tail risks include program cancellation/budget sequestration (FY2026 defense appropriation delays), high-profile launch failures that reset contracting, and integration risk from LDOS’s $2.4B ENTRUST deal; any of these could move shares +/-20–30% intrayear. Immediate (days) volatility will track contract/newsflow; short-term (3–12 months) re-rating will hinge on NASA/DoD awards; long-term (3–7 years) outcome depends on how fast agencies shift capex to OPEX (Artemis by 2028, lunar base by 2030).

Trade implications: Tactical allocations—favor LDOS for 6–12 month growth capture and LMT for income/defense base. Consider size limits (2–4% portfolio stakes). Options: use a 12-month LDOS call spread (10%/30% OTM) to lever upside with defined risk, funded by selling 3-month LMT calls after entry to harvest buyback/dividend carry.

Contrarian angles: Market may underprice LDOS’s diversification (ENTRUST) and recurring revenue optionality; conversely LMT’s hardware backlog is sticky but could see margin compression if procurement shifts to service contracts. Watch FY2026 appropriations and NASA award cadence over next 60–120 days as the decisive catalysts.

Key Decisions for Investors

• Establish a 3% portfolio long position in LDOS over the next 4–8 weeks, averaging in on any pullbacks of 5–10%; target 6–12 month horizon to capture ENTRUST synergies and NASA subcontract recognition.
• Establish a 2% portfolio long position in LMT for defensive income; add only on >8% drawdown or if forward dividend yield rises above 2.5%; hold as a 3–5 year core position to collect dividends and buybacks.
• Implement a pair trade: long LDOS (size 3%), short LMT (size 1.5%) for a 6–12 month relative-value play—rebalance if spread tightens by >25% or after major contract awards.
• Use options to limit cash outlay: buy 12-month LDOS call spread (~10%/30% OTM) sized to equal a 2% cash exposure, funded by selling 1–3 month slightly OTM calls on existing LMT holdings to capture premium and dividend carry.
• Monitor four specific catalysts in the next 30–120 days and act: FY2026 defense appropriations progress, NASA Artemis contract award notices, LDOS/ENTRUST integration milestones (closing/integration plan by 90 days), and any LMT program-cost overrun disclosures—trim positions if any catalyst increases downside risk >15%.