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

The comparison between Lockheed Martin and RTX may not be entirely precise due to RTX's significant exposure to commercial aerospace. However, considering that commercial aerospace stocks generally receive valuation premiums compared to defense companies, and taking into account that RTX's defense sector carries less risk than Lockheed Martin's, it can be argued that RTX is the better long-term investment when considering risk and potential rewards. This conclusion is based on several factors.

Traditionally, defense stocks have been perceived as relatively secure investments. This perception stems from their customers, primarily governments and NATO allies, which are viewed as highly dependable entities. Additionally, defense spending is not cyclical, making these stocks attractive for investors seeking stability. However, the appeal of defense stocks has diminished in recent years due to challenges faced by major players like Boeing, Lockheed Martin, and RTX.

One of the primary issues plaguing these companies is the impact of charges and delays stemming from fixed-price development programs. This problem is attributed to various factors, including the U.S. government's perceived leverage over defense contractors, as well as the complexities associated with modern defense projects, such as the F-35 strike fighter (Lockheed Martin) and the KC-46 Pegasus Tanker (Boeing).

Consequently, these challenges have led to cost overruns, project delays, and financial penalties for the involved defense contractors.

Despite these common difficulties, RTX appears to be the more favorable long-term investment option when compared to Lockheed Martin. This assessment is primarily due to RTX's reduced exposure to the risks associated with defense contracts and its ability to generate higher returns in the commercial aerospace sector.