LMT could hit record highs in September, if past is prologue
Tensions with North Korea are once again in focus, after the rogue nation's latest nuclear test. Against this backdrop, we decided to take a look at three defense stocks:
Boeing Co (NYSE:BA),
Northrop Grumman Corporation (NYSE:NOC), and
Lockheed Martin Corporation (NYSE:LMT), all of which have ties to the U.S. military. Below, we'll analyze how BA, NOC, and LMT stocks are performing, which stocks tend to outperform in the short term, and why options traders should be on alert.
Boeing Options Look Like a Bargain
Boeing today said it could "pursue the appropriate
regulatory options to protect our interests," regarding United Technology's plans to buy Rockwell Collins. BA shares are currently down 1.6% at $236.59, and since touching a record high of $246.49 in late July, have consolidated around the $240 area. The stock's Bollinger Bands are now extremely narrow, and could suggest a breakout on the charts soon.
Now is an opportune time to buy premium on Boeing's short-term options. The stock's Schaeffer's Volatility Index (SVI) of 16% is higher than just 16% of all other readings from the past year, suggesting BA's near-term options are attractively priced, from a historical volatility standpoint. Likewise, the equity sports a lofty Schaeffer's Volatility Scorecard (SVS) of 94, indicating Boeing stock has made bigger moves on the charts during the past year, relative to what the options market had priced in.
Northrop Grumman Stock Tends to Outperform Labor Day Week
Northrop Grumman shares have surged more than 26% in the past year, led higher atop their 40-day and 160-day moving averages. The stock notched an all-time peak of $274.61 in mid-August, and was last seen trading around $268.73 -- fractionally lower on the day.
However, it's worth noting that NOC has been among the
best stocks to own during Labor Day week, looking back 10 years. Northrop Grumman shares have added 0.64%, on average, and have ended the holiday week higher 80% of the time, according to data from Schaeffer's Senior Quantitative Analyst Rocky White.
Despite NOC stock's long-term uptrend, six out of 14 analysts maintain tepid "hold" ratings. Should the shares extend their quest for all-time highs, a round of upgrades could add fuel to the fire.
Options traders who want to speculate on NOC's near-term momentum can do so at a relative discount. The equity sports an SVI of 13% -- in just the 11th percentile of its annual range.
Lockheed Stock Tends to Shine in September
Not to be outdone, Lockheed Martin stock also touched a record high recently, peaking at $308.48 on Aug. 15. The shares have since pulled back to trade at $302.88, but are up 0.2% on the day.
LMT stock could resume its journey into uncharted territory soon, though, if past is prologue. Over the past 22 years, Lockheed has averaged a gain of 3.16% in the month of September, ending higher 73% of the time, according to data from Schaeffer's Quantitative Analyst Chris Prybal. A similar rally from current levels would place LMT stock around $312.45.
Still, LMT puts have been the options of choice among buyers recently. On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock has racked up a 10-day put/call volume ratio of 1.07 -- in the 80th percentile of its annual range. In other words, buyers have picked up LMT puts over calls at a faster-than-usual clip in the past two weeks. A mass exodus of option bears -- or traders not buying
protective puts to lock in gains on their LMT shares -- could be a tailwind for Lockheed stock.
Whatever the motive, LMT's near-term options are also attractively priced right now. The equity's SVI of 13% is lower than all but 5% of all other readings from the past 12 months, and LMT sports a healthy SVS of 70, indicating the shares have exceeded options traders' volatility expectations in the past year.