It's no surprise that defense contractors like Lockheed Martin (LMT) are desperately trying to diversify their business mix. The government is a big customer, but in this age of belt tightening, Lockheed needs to branch out if it wants to survive. The company is doing just that, pursuing a variety of projects outside the realm of government contracts. Today we will take a look at three of Lockheed's diversification efforts. Each project serves as an important step forward, and together they provide three reasons investors should consider buying Lockheed Martin stock.
1. LNG tanks
In March, Lockheed announced it was making a $3 million capital investment to develop liquefied natural gas tanks for transportation and storage. The company is using its experience manufacturing tanks for space shuttles to get into the LNG business. The increasing importance of natural gas on a global scale makes this a smart investment for Lockheed. The company has already received initial orders for the tanks, and it expects demand to grow.
Indeed, companies like Chevron (CVX) and Cheniere Energy (LNG) are both quickly working to finish LNG export facilities in the next two years. At the beginning of this year, the industry was capable of producing 290 million tons per year, and some estimates for LNG see supplies rising 4.5% per year through to 2030.
Nuclear fusion is an ambitious goal if there ever was one, but that's exactly what the company is working on at its secretive Skunk Works facility in California. Few specific details are known about the project, but as The New York Times reported last month, the company is aiming to develop small, modular fusion reactors that could be made in factories. If -- and this is obviously a big "if" -- Lockheed were to reach its goal the development would be nothing short of game-changing.
The third reason to consider picking up some Lockheed Martin stock is a product called Perforene. It is a thin carbon membrane, called graphene, with perforations about a nanometer big that filters salt from water. The thinness of the filter (it is only one-atom thick) means the energy required to push salt water through the filter is considerably less -- 100 times less, according to Lockheed -- than what is needed for other filtration systems.
The filter is still in its development phase, but Lockheed expects to be able to commercialize it by 2014 or 2015. It would slash the cost of filtering water at a time when world demand for clean water is reaching unprecedented levels.
Tackling the world's energy problems with forward-thinking ideas is a brilliant strategy for diversifying a business away from government defense contracts. We will always need energy, and increasingly there is money to be made by whoever can develop cleaner energy, or find ways to use less of it. Lockheed is targeting those problems and I think it will pay off down the road. You might say the same for buying Lockheed Martin stock.
Lockheed Martin successfully demonstrated the launch, guided flight, target acquisition and precision strike capability of its Nemesis missile in three flight tests at White Sands Missile Range, N.M. Nemesis is a man-portable, surface-launched missile that enables warfighters to engage targets with precision lethality from as close as 100 meters to well beyond the line of sight. The missile can be employed during dismounted operations as well as be adapted for employment from various ground, maritime or airborne platforms.
"Nemesis provides critical performance to forward-deployed troops in response to a stated warfighter capability gap," said Frank St. John, vice president of tactical missiles and combat maneuver systems at Lockheed Martin Missiles and Fire Control. "Warfighters must be able to trust that the weapons they deploy will deliver the intended effects every time. Our three-for-three flight tests demonstrate the missile is reliable and lethal."
In the first two tests, Nemesis demonstrated vertical launch, GPS navigation to targets located at distances of eight and 12 kilometers, engagement by the missile's semi-active laser (SAL) seeker and live warhead detonation. In both flights, Nemesis performed flawlessly, destroying the intended targets. The successful third shot demonstrated the vertical launch of an inert round, followed by GPS-only navigation to a target positioned just 100 meters away. Nemesis is fired vertically from its launch tube, enabling 360-degree engagement capability. A combat-proven rocket motor, deployable wing and GPS guidance enable the missile to engage targets in excess of 12 kilometers. The missile's SAL seeker activates in the terminal phase of flight to provide precision accuracy and minimize collateral damage. The user is also able to select height of burst or point-detonation fusing options to optimize lethality against enemy personnel, light armored vehicles and structures.
Nemesis's ability to be deployed from airborne Common Launch Tubes fulfills existing Special Operations Forces and U.S. Marine Corps requirements for a standoff precision guided munitions. The missile can also be configured for internal or external carriage on other fixed- and rotary-wing platforms. Nemesis's versatility enables it to contribute to a wide array of critical missions. Lockheed Martin funded the development of the Nemesis missile, building upon proven technologies from demonstrated systems, including HELLFIRE II, DAGR and Scorpion. Using components from these systems reduces risk and shortens the time from initial development to participation in government-funded flight tests. Lockheed Martin Missiles and Fire Control is a 2012 recipient of the U.S. Department of Commerce's Malcolm Baldrige National Quality Award for performance excellence. The Malcolm Baldrige Award represents the highest honor that can be awarded to American companies for achievement in leadership, strategic planning, customer relations, measurement, analysis, workforce excellence, operations and business results.
Headquartered in Bethesda, Md., Lockheed Martin is a global security and aerospace company that employs about 120,000 people worldwide and is principally engaged in the research, design, development, manufacture, integration, and sustainment of advanced technology systems, products, and services. The Corporation's net sales for 2012 were $47.2 billion. The current annual dividend yield is 4.84%.