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The first month of 2023 saw terrific gains, with the S&P 500 and Russell 3000 advancing a respective 6.3% and 6.9% on a total return basis. Interestingly, despite the huge rally, folks on Main Street remain a pessimistic bunch, remarks John Buckingham, editor of The Prudent Speculator.

Growth topped Value in the January performance race, but the Russell 3000 Value index’s 5.4% return added to the big rebound in Q4 2022. In fact, returns on the Value indexes since the end of Q3 eclipsed 20% in early February.

The mood on Wall Street isn’t great, though, as strategists at the big investment houses have lowered their year-end target for the S&P 500 to 4050 from 4078 at the start of 2023.

Given that we have long believed that we should be greedy when others are fearful, we are not unhappy to see so many so negative on stocks. After all, those same Wall Street gurus reinforced a familiar maxim: The only problem with market timing is getting the timing right.

One stock I like here is Lockheed Martin (LMT). Lockheed is a global security and aerospace company that is principally engaged in the research, design, development, manufacture, integration, and sustainment of advanced technology systems, products, and services.

Shares have risen more than 30% since the end of 2021, a result of increased spending on weaponry and expansion of military programs. LMT earned $7.79 per share (vs. $7.40 est.) in Q4 and had revenue of $19.0 billion (vs. $18.3 billion). For the full year, Lockheed earnings grew 20%, and we suspect they will continue to climb in the future.

While Defense spending has been somewhat slow to increase in support of Western interests in Ukraine and eastern Europe, the U.S. and its allies are burning through munition stockpiles. Our expectation is that manufacturing ramps up to re-arm Western militaries.

It might take some time to get the political support to pay for that, but we think it will eventually come as those in the Pentagon (and other government agencies) make changes as a result of the data gleaned from Ukraine.

In 2023, LMT management forecasts $65 billion to $66 billion of revenue and $26.60 to $26.90 of EPS. LMT yields 2.6%. Given this outlook, we would say that you may want to raise your stake in Lockheed Martin.

About the Author

John Buckingham joined AFAM Capital in 1987 and Kovitz in 2018, as part of the Kovitz acquisition of AFAM. He has more than 30 years of investment management experience and serves as editor of The Prudent Speculator, which has been a trusted newsletter for over 40 years.

Mr. Buckingham chairs the AFAM Investment Committee, leading a team that performs comprehensive investment research and financial market analysis. He has been featured in Barron's, The Wall Street Journal, and Forbes, and frequently contributes to CNBC, Bloomberg, and Fox Business News. Mr. Buckingham is a recognized industry contributor who regularly speaks at prominent industry seminars and events.

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