A dual protection trade

Under the Trump’s administration, almost all the sectors are under pressure in terms of budget, except one that is the largest beneficiary: Defense. It is not an expectation but reality that Trump has significantly increased the defense spending for the years to come. The companies that will greatly benefit from it are no question the defense contractors. Lockheed Martin (LMT) is the top gun among them. It has got billions of dollars contracts from the government which will only increase under the Trump’s watch. In other words, buying LMT has the effect of protection from the national perspective. Of course, don’t argue with me if you don’t agree with what Trump is doing but this is a simple reality. Then comes with the second protection, a micro one for your own portfolio. As I have said consistently, this market is facing some serious risk of correction, probably in the scale of 5-10% that can happen any time. But there seems no fear out there as people just want to chase the markets to new highs almost every day. Believe me, it will stop for a pause at some point and it may not be too far away. It will be great idea to have some protection in place. One way to do so is to buy something that will likely go up during panic. I think LMT may be one of them. Although I don’t know exactly what will trigger the next panic, I suspect it may likely be related to some sort of geopolitical crisis. The North Korea nuclear crisis is on top of the list for now and Trump seems to have increasingly lose his patience with NK. Of course don’t get me wrong that I’m advocating a war with NK. Not at all. I’m wholeheartedly wish this crisis can be resolved diplomatically but we cannot ignore the risk of some sort of military conflicts that may be triggered, if NK continues to take the provocative actions. I haven’t seen any light at the end of the tunnel so far as the little Kin seems very determined to go with his own way to challenge the US. If unfortunately some crisis arise in the Korea Peninsula or anywhere in the world (as the world is really full of potential crises at the moment), panic will hit the market very quickly and hard. I think LMT will be flying in such kind of crisis and therefore could be one type of protection for your portfolio.

Just be aware that this is by no means a value trade, although I really like LMT as a long term dividend stock only if it can be much cheaper than it is now. On the contrary, LMT is quite expensive at the moment but it doesn’t appear to want to go down any time soon in the current environment.