RTX Beats Lockheed Martin on Risk -- Here's Why It's the Better Buy Long-Term

The comparison between Lockheed Martin (NYSE: LMT) and RTX (NYSE: RTX) isn't perfect, given RTX's substantial exposure to commercial aerospace. However, given that commercial aerospace stocks tend to command valuation premiums over defense companies, and RTX's defense business carries less risk than Lockheed Martin's, I would argue that the former is the better buy on a risk/reward basis. Here's why.

Investors traditionally looked at defense stocks as relatively safe investments, as their customers, governments, and notably the U.S. government and its NATO allies, are seen as being as reliable as can be. In addition, defense spending isn't cyclical. As such, defense stocks were bought for their "defensive" qualities, with the trade-off being relatively slow growth.

While much of that argument still applies, there's been a discernible change in recent years, and it comes down to the difficulties companies like Boeing, Lockheed Martin, and RTX, to a lesser extent, have had with charges and delays on fixed-price development programs. Whether it comes from, in the words of Lockheed Martin CEO Jim Taiclet in January 2024, the U.S. government "taking advantage of that monopsony power" or the increasing complexity of defense projects like the F-35 strike fighter (Lockheed Martin) or the KC-46 Pegasus Tanker (Boeing), the result is the same: cost overruns, delays, and charges for the defense contractors.

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