Lockheed Martin Stock Is Down 6% in 2 Days. Here's What Investors Need to Know

It's often said that financial markets are efficient. However, Mr. Market doesn't bat 1.000, and he's not always just.

Take the case of Lockheed Martin (NYSE: LMT). The defense stock slipped 4% last Thursday and another 3.4% on Monday, with no company-specific news to explain the declines. The most likely culprit is news from last week that the U.S. and Iran are hammering out the details of an interim peace deal. It makes sense that the de-escalation of military tensions in the Middle East would drag on this stock and its defense peers.

Government spending supports a long-term case for Lockheed Martin shares. Image source: Getty Images.

Investors can likely tolerate a defense stock retreating on news of a peace deal. As it relates to Lockheed, the frustrating thing is that the stock has been in a bear market since the war started. The shares are off 23.8% since Feb. 28, while the S&P 500 is up 7.6% over the same period. That weakness may be masking an opportunity.

Patience is required with Lockheed stock

Lockheed's bear market status isn't entirely attributable to the war in Iran. The company's first-quarter results spooked some market participants. Zero revenue growth and negative free cash flow will do that. Investors are right to be apprehensive about any company with disappointing earnings and negative free cash flow, but there's more at play with Lockheed.

The defense behemoth sits on a $194 billion backlog, which is equivalent to 2.6 times 2025 sales. Even market participants who want to quibble, saying that large backlogs aren't unusual for government contracts of significant scale, must acknowledge that the level of clarity Lockheed is presenting is enviable and hard for most industrial stocks to match.

Importantly, 27% of that backlog is attributable to F-35 sustainment. That's pertinent to investors because the next-generation fighter jet program is additive to Lockheed's margins. Over the life of the F-35 program, which is expected to span more than 60 years, the total cost is estimated at $2.1 trillion. Obviously, there's investing for the long term, but that doesn't always encompass six-decade holding periods. The point is that the F-35 program could pay long-term, predictable dividends for patient Lockheed investors.

Fighter jets are only part of the Lockheed story. The White House is seeking a staggering $1.5 trillion in fiscal 2027 defense spending, with roughly half of that sum devoted to procurement and the modernization of weapons systems. Some of that spending will go to artificial intelligence (AI) and drones, segments in which Lockheed Martin is established.

Not a space stock, but...

As investors know, space stocks are all the rage these days. Lockheed isn't a pure-play space name. Still, the segment drove $12.5 billion in sales in 2024, and the company has exposure to both deep and human-led space exploration as well as space national security. In fact, it was recently awarded a $514 million contract from the U.S. Space Force.

There's some bumpiness in Lockheed's quarter-to-quarter space profits. Still, the company has a sizable backlog in this segment, which could help allay near-term concerns about profit fluctuations.

Plus, Uncle Sam is making clear he wants the U.S. to be the undisputed champion in space defense and warfare systems. Hopefully, those systems will never be used, but there's big money in preparedness, indicating space could be a long-term catalyst for Lockheed stock.

Todd Shriber has no position in any of the stocks mentioned. The Motley Fool recommends Lockheed Martin. The Motley Fool has a disclosure policy.