👉️ Are Stocks Too Expensive? The Data Says No ⤵️ 

👉️ Top 2 Defense Stocks to Watch: Middle East Tensions Are Rising 🪖 

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Are Stocks Too Expensive? The Data Says No ⤵️ 

At the time of writing this, the S&P 500 is nearing record highs, creating some discussion about its current valuation, which exceeds both 5 and 10 year averages, leading many investors to label stocks as “expensive”.

But as we know, high valuations don’t always predict an immediate market correction, as they can continue to rise based on market sentiment and economic conditions.

Data suggests that inflated P/E ratios can remain for extended periods of time, but is still dependent on corporate earnings and monetary policy.

As per the image below, the current market is less “expensive” than the 2021 stock boom.

In fact, the most expensive stocks today trade at an average P/E of 63x, compared to 104x in 2021.

P/E ratios are more of a reflection of investor confidence rather than a market indicator. While high valuations can raise some concerns, they are not a guarantee of downturns.

Top 2 Defense Stocks to Watch as Middle East Tensions Escalate

The defense sector is set for significant future growth driven by geopolitical tensions, rising defense budgets, and technological advancements in AI, cybersecurity, and advanced materials.

• Geopolitical Tensions: Conflicts like Russia-Ukraine/Israel-Iran and global power rivalries are boosting defense budgets.

• Technological Innovation: Advances in AI for decision-making and battlefield operations, alongside growing cybersecurity needs are driving the industries growth.

• Supply Chain Progress: Defense contractors are improving supply chain efficiency, which leads to enhanced profitability.

• Government Support: Increased funding, R&D initiatives, and partnerships create a favourable environment for defense companies.

Lets dive into 2 companies that could see growth in the coming months.

Northrop Grumman Corp $NOC ( ▲ 0.07% ) 

Northrop Grumman is a leading global aerospace and defense technology company. It’s a provider of systems and technologies for aerospace, defense, and space exploration. The company is renowned for developing advanced aircraft like the B-2 stealth bomber, as well as space systems and defense electronics. Northrop investors were blindsided by a $477 million pre-tax charge on the company's B-21 bomber program in the first quarter of 2025, but the charge was mostly due to adjustments that allow Northrop to ramp up production more rapidly.

Pros:

• Innovation Focus: Investments in next-generation technologies like the B-21 bomber and space defense position it for future growth.

• Global Demand: Strong international interest in missile and missile defense systems due to rising global threats.

• Stable Cash Flows: Long-term contracts and a focus on high-margin segments support financial stability.

Cons:

• High Development Costs: Significant R&D spending on programs like the B-21 could put pressure on short-term margins.

• Geopolitical Dependence: Performance is tied to sustained global tensions, which may not persist if conflicts de-escalate.

First quarter 2025 net earnings totalled $481 million ($3.32 per diluted share) as compared with $944 million, or $6.32 per diluted share, in the first quarter of 2024.

The stock is up 4% YTD (as of June 25th).

Lockheed Martin Corp. $LMT ( ▲ 0.15% ) 

Lockheed Martin is a leading global defense, security, and intelligence firm, and is a key supplier to NASA and other non-defense government agencies. The company produces missile and targeting systems, mission systems for ships, submarines, and aircraft, and manufactures Black Hawk and Seahawk helicopters.

Pros:

• Stable Revenue: Long-term government contracts provide predictable cash flows.

• Dividend Reliability: Offers a consistent dividend with a yield of approximately 2.9%, appealing to income-focused investors.

• Technological Leadership: Investments in AI, space defense, and cybersecurity align with U.S. modernization priorities and societal demands.

Cons:

• Political Risk: Heavy reliance on U.S. government spending makes it vulnerable to budget cuts or policy shifts.

• Geopolitical Sensitivity: Potential de-escalation of global conflicts could reduce demand for defense products.

Q1 2025 sales of $18.0 billion, compared to $17.2 billion in the first quarter of 2024. Net earnings in the first quarter of 2025 were $1.7 billion ($7.28 per share) compared to $1.5 billion ($6.39 per share) in Q1 2024.

The stock is down 5% YTD (as of June 25th)

Alex (The Dividend Dominator)
Founder and CEO of Dividend Domination Inc.
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