Comparing Defense Giants: General Dynamics vs. Lockheed Martin – Which Stock Should You Invest In?

General Dynamics vs. Lockheed Martin: A Comparative Investment Analysis

The equity markets have faced a downturn primarily due to rising trade tensions, leading to significant losses for both the Dow Jones and the S&P 500 indexes. This recent sell-off has been driven by President Trump’s firm position on tariffs. Within the defense sector, an analysis indicates that General Dynamics (NYSE: GD) offers a more attractive investment opportunity than Lockheed Martin (NYSE: LMT). Both companies currently trade at similar valuations of around 17x forward earnings, but GD is expected to outperform LMT based on its stronger revenue growth and better profitability metrics.

This conclusion is derived from a thorough analysis of various key metrics, including historical revenue performance, investment returns, and comparative valuation data. In the following sections, we will explore the reasons supporting the view that General Dynamics represents a more promising investment option in the defense sector over the next three years. Furthermore, for those seeking a steadier investment alternative, the High-Quality Portfolio, which has surpassed the S&P 500 with returns exceeding 91% since its inception, is worth considering.

Image by John atlantis1@outlook.be from Pixabay

Revenue Growth: A Comparative Analysis of GD and LMT

General Dynamics has achieved an impressive 7.5% average annual revenue growth from 2021 to 2024, escalating from $38 billion to $48 billion. In contrast, Lockheed Martin has shown a modest 2.0% average annual growth during the same period, increasing its revenue from $67 billion to $71 billion. Moreover, over the last twelve months, General Dynamics’ sales growth of 12.9% significantly outpaces Lockheed Martin’s 5.1%.

Lockheed Martin’s revenue growth over recent years has benefited from increased production volumes in key programs such as Sikorsky helicopters and missile systems. Additionally, the rising number of production contracts related to the F-35 and national security space programs has markedly contributed to its revenue. This growth trajectory is likely to continue, especially given the ongoing geopolitical instability that is predicted to sustain defense expenditure.

General Dynamics’ revenue growth is supported by strong performances across its core business segments. The aerospace division is a key player, with a rise in aircraft deliveries, particularly the G700, which began shipments in Q2 2024 following regulatory approvals. The marine systems segment is also fostering growth due to increased production volumes on critical submarine programs. Additionally, the combat systems division’s sales have been enhanced by the U.S. Army’s M10 Booker vehicle program.

Operating Margin Trends: LMT’s Decline Versus GD’s Stability

From 2021 to 2024, Lockheed Martin faced a notable decline in its operating margin, dropping from 13.6% to 9.9%. This downturn is primarily attributed to a $1.4 billion loss in its classified programs reported in 2024. Conversely, General Dynamics experienced a more modest reduction in its operating margin, decreasing from 10.8% to 10.1%. This slight drop reflects initial delivery costs associated with the G700 aircraft.

Financial Risks: Analyzing Debt and Cash Balances

When evaluating financial risks, both General Dynamics and Lockheed Martin present a balanced overview. While Lockheed Martin has a higher debt-to-equity ratio of 19%, compared to General Dynamics’ 15%, this indicates slightly greater leverage. On the other hand, General Dynamics holds a cash-to-assets ratio of 3%, which is lower than Lockheed Martin’s 4.5%, suggesting a smaller liquidity reserve. Therefore, General Dynamics showcases a stronger debt position, while Lockheed Martin enjoys a more robust cash stance.

Stock Performance: GD and LMT vs. the S&P 500

From early 2021 to now, General Dynamics’ stock has appreciated significantly, yielding a total gain of 90%, climbing from about $135 to $255, outperforming the S&P 500’s 55% increase during the same period. GD has maintained positive annual returns across these years (44% in 2021, 22% in 2022, 7% in 2023, and 4% in 2024), though it trailed the S&P 500 in 2023 and 2024.

In comparison, Lockheed Martin’s stock has risen by 45%, moving from approximately $315 to $450, falling behind the S&P 500’s 55% growth. Lockheed Martin saw considerable volatility in its performance, recording returns of 3% in 2021, 40% in 2022, -4% in 2023, and 10% in 2024, resulting in underperformance relative to the S&P 500 in 2021, 2023, and 2024.

The Investment Verdict: Why GD Stands Out

Our analysis leads to the conclusion that General Dynamics is the superior investment option compared to Lockheed Martin. GD showcases stronger revenue growth, improved profitability, and a risk profile comparable to that of LMT. Furthermore, GD’s valuation remains more attractive, with LMT’s stock trading at 20.1 times its trailing adjusted earnings of $22.31 per share—slightly above its three-year average P/E ratio of 19.6. In contrast, GD trades at 18.6 times its trailing earnings of $13.63 per share, below its three-year average P/E ratio of 19.9. Given the current geopolitical landscape favoring the defense sector, General Dynamics’ projected sales growth and higher profitability further solidify its position as the preferred choice.

While General Dynamics offers a strong investment case, the High-Quality Portfolio, a selection of 30 stocks that have outperformed the S&P 500 over the past four years, presents another viable investment opportunity.

Returns	Mar 2025 MTD [1]	2025 YTD [1]	2017-25 Total [2]
LMT Return	0%	-6%	125%
GD Return	1%	-3%	77%
S&P 500 Return	-2%	-1%	161%
Trefis Reinforced Value Portfolio	-2%	-4%	658%