Lockheed Martin Corporation (LMT): Does It Pass Warren Buffett’s Test?

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Investors have worried about these companies recently in the face of potential cost-cutting at the Pentagon and among other major clients. However, it’s worth noting that in the defense world “spending cuts” usually means a slowdown in growth of defense spending rather than an actual reduction in spending. Still, Lockheed Martin Corporation (NYSE:LMT) has looked to cut costs in hopes of protecting its current profit margins, and Northrop Grumman is expected to suffer from lower sales volumes over the next few years.

One factor that puts General Dynamics in a particularly tough position is its exposure to capital-intensive products such as tanks and warships. Losing buyers for these products could mean trouble for a company that has already invested a great deal of money into these products.

Raytheon stands out in this group due to its ability to maintain higher profit margins than most companies in the industry.

Businesses with consistently high ROIC show that they’re efficiently using capital. They also have the ability to treat shareholders well, because they can then use their extra cash to pay out dividends to us, buy back shares, or further invest in their franchise. And healthy and growing dividends are something that Warren Buffett has long loved.

The article Does Lockheed Martin Pass Buffett’s Test? originally appeared on Fool.com.

Jim Royal has no position in any stocks mentioned. The Motley Fool owns shares of General Dynamics, Lockheed Martin, Northrop Grumman, and Raytheon.

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