Full Spectrum Force
In this edition of the Smart Investor newsletter, we spotlight the stock of the full-spectrum enabler of U.S. military power. But first, let’s dive into the latest portfolio news and updates.
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Portfolio News and Updates
❖ Under the newly enacted “One Big Beautiful Bill” fiscal package – signed into law on July 4, 2025 – semiconductor manufacturers that initiate U.S.-based fabrication projects before the end of 2026 are eligible for a 35% investment tax credit (up from the previous 25%). This policy is intended to bolster domestic chip production and reduce reliance on foreign supply chains.
The primary beneficiaries among Smart Portfolio holdings are TSMC (TSM), Broadcom (AVGO), and Qualcomm (QCOM), as they are positioned to benefit directly from this tax credit. However, this and other fiscal initiatives aimed at expanding domestic high-technology production could, over time, spur faster growth in the U.S. semiconductor industry – driving increased demand for tech and industrial products and services from Arista Networks (ANET), Amphenol (APH), Cisco (CSCO), IBM (IBM), MasTec (MTZ), Oracle (ORCL) and others.
❖ Evercore ISI believes that the “One Big Beautiful Bill” (OBBB) – which introduces significant tax reforms – is poised to enhance cash flows for major tech firms, notably Microsoft (MSFT) and Oracle (ORCL).
OBBB reinstates immediate expensing for domestic R&D costs and restores 100 % bonus depreciation for qualified capital expenditures from 2025 through 2029. These provisions allow companies to deduct substantial investments upfront, improving cash flow. The tax benefits are particularly advantageous for companies with high R&D intensity and substantial capital spending – especially those investing heavily in AI infrastructure and data centers.
Evercore estimates that Microsoft could realize up to an $11 billion boost in free cash flow, equating to approximately $1.50 per share, while Oracle might see up to a $3.3 billion increase, or about $1.12 per share, in fiscal 2025.
❖ TSMC (TSM) is delaying construction of its second semiconductor plant in Japan’s Kumamoto prefecture as it reallocates resources toward its massive $165 billion U.S. expansion – a move that underscores the company’s strategic prioritization of its American footprint. The shift is driven by strong customer demand, U.S. incentives under the CHIPS Act, and potential Trump administration tariffs that threaten imported chips. For U.S. investors, the delay in Japan reinforces TSMC’s commitment to scaling advanced manufacturing on U.S. soil – boosting local supply chain resilience and deepening its ties to American tech giants like Apple and Nvidia.
The Arizona facilities – which include three fabs and advanced packaging plants – are slated to produce 2-nanometer chips by 2028 – albeit behind Taiwan’s rollout of the same technology. That timing gap – mandated in part by Taiwan’s 2024 legislation barring export of its most advanced (≤1nm) process nodes – raises questions about how much of TSMC’s crown-jewel capabilities will ever leave the island.
There are also questions about whether TSMC can balance its global ambitions with the execution risks that come with such a sprawling strategy – as the Japan delay already illustrates – and whether it can navigate the added uncertainty of potential U.S. tariffs on imported chips. For now, however, the company’s U.S. focus appears to strengthen its strategic position in a politically critical market.
❖ Oracle (ORCL) is doubling down on its strategy to expand across every market it touches – private and public alike – with a new push into U.S. federal government contracts. According to the General Services Administration, Oracle is offering the federal government a 75% discount on its license-based software and a substantial discount on cloud services through November, along with access to its AI tools and dedicated assistance in migrating IT systems to the cloud. This first-of-its-kind deal spans cloud infrastructure across the entire government – aligning with the Trump administration’s push to reduce contractor costs.
The deal complements Oracle’s broader expansion strategy, which recently featured a landmark agreement with OpenAI to support the Stargate project – expected to lease 4.5 gigawatts of data center power and generate over $30 billion in annual revenue by 2028.
By leveraging its financial strength to offer significant discounts where it aims to gain share – while continuing to invest in AI-driven cloud capabilities – Oracle is positioning itself as an indispensable partner in both government and commercial markets, demonstrating its ability to scale and adapt its cloud franchise to capture lucrative opportunities.
❖ Citi raised its price target on Applied Materials (AMAT) to $220 from $190 and reiterated its “Buy” rating, adding the stock to its U.S. Focus List of highest-conviction ideas. The move follows China’s decision to restore rare earth export licenses and the U.S. lifting related countermeasures, reducing geopolitical risk for semiconductor equipment makers. Citi’s U.S. Focus List highlights stocks the firm expects to outperform, reflecting attractive valuations, strong fundamentals and favorable catalysts. AMAT’s inclusion signals Citi’s heightened confidence in its positioning within the semiconductor cycle and its potential to benefit from easing trade tensions and sustained industry demand.
❖ Uber Technologies (UBER) saw its shares surge to an all-time high on Monday after Wells Fargo reaffirmed its “Buy” rating and raised its price target from $100 to a Street-high of $120, implying an upside of over 24%. Wells Fargo analysts highlighted Uber’s ability to attract and retain partners, which, combined with its expanding user ecosystem, supports their bullish outlook and higher valuation. Uber’s large and growing user base is viewed as a critical asset, particularly as competition in autonomous mobility intensifies. The scale of Uber’s network is expected to give it leverage in negotiations with AV partners and strengthen its market position. Analysts also see the integration of AI to enhance autonomous driving capabilities as a catalyst for future growth and operational efficiency.
❖ Alphabet’s (GOOGL) Google is facing an EU antitrust complaint over its AI Overviews – the AI-generated summaries appearing at the top of search results. A coalition of publishers accuses Google of misusing their web content, claiming the feature diverts clicks away from their sites and causes significant harm to traffic, readership, and revenue.
After decades of optimizing content for Google Search, publishers now find themselves sidelined as the tech giant integrates AI into its platform – a move it sees as essential to remain competitive in the GenAI era. Despite its dominance in web search and technological leadership, Google must adapt to this shift. The company is aware of industry pushback and has begun addressing publisher and advertiser concerns, including hiring staff to promote its ad technology and signaling a renewed focus on supporting content creators.
In separate news, Roth Capital raised its price target on Alphabet to $205 from $180, keeping its “Buy” rating. Roth’s analysts praised Alphabet’s solid fundamentals – steady ad revenue, growing cloud, and strong free cash flow – while acknowledging two major overhangs: ongoing antitrust lawsuits and investor concerns about whether AI-driven search could hurt margins or cannibalize lucrative ad clicks. However, they argue that at its current valuation, GOOGL is already pricing in much of this risk, making it a sentiment recovery idea with real potential for a re-rating in the near term. Moreover, Roth singled out Alphabet as its #1 Mega Cap pick for H2, citing an attractive risk/reward backdrop.
❖ IBM (IBM) has unveiled its Power11 chips and servers, reinforcing its position as the backbone of mission‑critical enterprise infrastructure. The Power11 marks IBM’s first major upgrade to its Power line since 2020 and underscores its focus on reliability, security, and seamless AI integration – qualities that keep it indispensable in industries such as finance, healthcare, and manufacturing.
With the Power11 line, IBM is doubling down on what it does best: delivering resilient, secure systems for businesses that cannot afford downtime. Power11 promises zero planned downtime, just 30 seconds of unplanned downtime per year, and ransomware detection within 60 seconds – metrics that speak directly to CIOs managing sensitive operations under tight SLAs. Importantly, the platform also integrates AI inference capabilities, with plans to incorporate IBM’s in‑house Spyre AI accelerator later this year. IBM isn’t trying to compete with Nvidia in training LLMs, instead focusing on enabling inference in enterprise workloads. This strategy reinforces IBM’s dominance in specialized niches where reliability and security are not optional – but essential.
❖ The U.S. government has lifted export restrictions on GE Aerospace (GE), allowing the company to resume shipments of jet engines to China’s state-owned aircraft manufacturer, COMAC. This decision reverses a suspension imposed in late May 2025 – part of broader trade tensions between the U.S. and China that impacted various sectors, including aerospace.
The resumption of exports is significant for GE Aerospace, as China represents a substantial market for the company. While exact figures are not publicly disclosed, the temporary suspension likely affected a portion of GE’s annual China revenue – estimated at approximately $2.8 billion.
This development not only restores a critical revenue stream for GE Aerospace but also signals a potential easing of U.S.-China trade tensions, particularly in the high-tech and aerospace sectors. The decision could also benefit other U.S. aerospace suppliers affected by previous export restrictions.
❖ Leidos Holdings (LDOS) secured an $87 million contract from NATO’s Communications and Information Agency to lead a multinational initiative modernizing the alliance’s IT infrastructure. Under the indefinite delivery, firm-fixed-price agreement, Leidos will develop a secure, private cloud-based system to replace aging technology, enhance cybersecurity, and unify core services like service management and decision support. The project advances NATO’s digital transformation, improving resilience, interoperability, and agility across its command structure. This contract reinforces Leidos’ position as a leading technology partner in defense, at the forefront of secure cloud modernization and cyber defense amid growing digital threats. Work is already underway as part of NATO’s IT Modernization program.
❖ BlackRock (BLK) agreed to acquire ElmTree Funds, integrating it into its Private Financing Solutions platform alongside HPS Investment Partners. The deal, paid mostly in stock with performance-based earnouts, deepens BlackRock’s presence in private credit and net lease real estate, key areas of growth for the firm. By adding ElmTree’s expertise and institutional client relationships, BlackRock strengthens its competitive position in higher-margin private markets, supporting its long-term strategy to diversify beyond traditional public markets and capture alternative asset demand.
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Portfolio Stocks Under Review
❖ We are placing Texas Pacific Land (TPL) under review.
TPL remains a unique, high‑quality asset at the heart of the Permian Basin. Its Q1 2025 results underscored the resilience of its model – with record oil & gas royalty production, record water revenues, and double‑digit free cash flow growth. The company continues to expand its royalty base through acquisitions and strategic acreage swaps, develop new water technologies including desalination, and maintain a pristine balance sheet.
The “One Big Beautiful Bill” fiscal package further strengthens TPL’s outlook. By increasing incentives for U.S. oil & gas production, streamlining permits, and promoting commingled development, the bill should accelerate activity in the Permian Basin over the next 6–12 months – directly benefiting TPL through higher royalty and water revenues. The company’s scale and irreplaceable land position leave it uniquely positioned to capitalize on these tailwinds, while its long‑term optionality in water and carbon remains underappreciated.
That said, TPL is inherently exposed to oil & gas price volatility, even though its earnings growth is more tied to volumes than price levels. A decline in oil or gas prices could reduce drilling on its land, directly hurting royalty revenue. TPL’s water business, which supplies, manages, and treats water for Permian operations, has been growing rapidly but still accounts for only about a third of income, with the bulk coming from energy royalties. While oil and gas prices are expected to remain broadly supported over the next 6-12 months by geopolitical constraints and steady demand, any meaningful pullback would likely weigh on royalties and sentiment.
Our main concern is TPL’s steep valuation, which reflects a hefty premium for its unique asset base and growth optionality. The stock already trades at a significant premium to peers – over 50x trailing earnings and a sub‑2% earnings yield – suggesting it is priced for perfection. This leaves little margin for error, making the stock vulnerable to any disappointment in results.
TPL’s analyst coverage is limited, currently confined to a single firm, Texas Capital Securities – an unusual setup for such a profitable and growing large‑cap company. Notably, TCS recently raised its price target – now implying nearly 24% upside – and upgraded TPL from “Hold” to “Buy,” citing growing confidence in its push into data centers, power projects, and water infrastructure in the Permian Basin.
Another supporting factor is the behavior of TPL’s insiders and large stakeholders – particularly director Murray Stahl and Horizon Kinetics – who have consistently increased their holdings on dips. These steady purchases signal insider confidence in TPL’s long‑term prospects despite near‑term volatility. Moreover, institutional ownership has risen to about 60% over the past year, with net institutional inflows of approximately $2.4 billion.
In our view, TPL combines defensiveness, leverage to favorable policy, and long‑duration optionality – but the elevated valuation and sensitivity to commodity prices warrant caution. We will continue to monitor how OBBB‑driven activity, water initiatives, and commodity trends translate into earnings momentum and will consider a sale if the risk/reward does not improve.
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❖ We are placing Berkshire Hathaway (BRK.B) under review due to its recent stock underperformance.
Berkshire is at the intersection of excellent long‑term fundamentals and short‑term market headwinds. The stock’s recent underperformance reflects both the market’s rotation toward tech and concerns over Warren Buffett’s retirement – announced earlier this year. On one hand, Berkshire remains the gold standard of high‑quality conglomerates – with unmatched financial strength, a diversified portfolio, and a massive store of dry powder for future investments. These attributes suggest that the core investment thesis remains intact – nothing is fundamentally “wrong” with the company. In fact, the pullback and fading “Buffett premium” have made the stock more reasonably valued – which could support long‑term returns, especially if incoming CEO Greg Abel executes smoothly.
Berkshire also tends to outperform in weak markets, preserving capital better than peers. If the current tech‑driven rally reverses, Berkshire could serve as a counterweight – thanks to its conservative approach and ample cash. Its diversified, defensive holdings position it well for a value resurgence scenario.
On the other hand, until the CEO transition is complete and Greg Abel establishes a track record, the stock may remain under a cloud of uncertainty. The “Buffett premium” could erode further in the coming year – capping upside as investors wait to see how Berkshire performs under new leadership.
Moreover, no clear catalyst appears imminent to re‑rate the stock. Given its sheer size, even strong operating results rarely move the needle. Absent a major development – such as a transformative acquisition or significant capital allocation move – Berkshire could drift sideways. Expected earnings growth in 2025 is modest – which, while unsurprising given its cash‑heavy balance sheet, could weigh on sentiment if the current growth‑stock leadership persists.
Finally, the stock still trades at a notable premium to the broader Finance sector and comparable peers. With no dividend and only modest share buybacks, investors lack a meaningful capital return as a cushion. This raises the risk that the stock remains range‑bound – tying up capital that could potentially earn higher returns elsewhere. We will continue monitoring its relative performance and developments at upcoming checkpoints.
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❖ We are placing Lockheed Martin (LMT) under review due to recent underperformance and shifting defense priorities.
LMT remains a cornerstone of the U.S. and allied defense industrial base, with unmatched scale, a backlog covering over two years of sales, and exposure to enduring programs like the F‑35, THAAD, and advanced missile systems. Its Q1 2025 results reaffirmed this stability, though growth lags peers such as General Dynamics, which delivered double‑digit top‑ and bottom‑line gains, and Northrop Grumman, which is benefiting from bomber and missile programs.
The recently enacted “One Big Beautiful Bill” (OBBBA) fiscal package provides a tailwind for defense contractors, though its emphasis on naval shipbuilding and submarines favors General Dynamics and Huntington Ingalls more than LMT. Still, Lockheed is positioned to benefit from the bill’s $25 billion allocation to missile defense, munitions, and emerging technologies. While these funds reinforce LMT’s core businesses, many of its programs were already well funded before OBBBA, limiting immediate upside compared to peers expanding into new platforms.
Compounding the headwinds, Lockheed recently lost the high‑profile Air Force’s F‑47 fighter contract to Boeing, and the Navy’s F/A‑XX program – another potential growth driver – has been shelved in favor of the F‑47. This removes near‑term opportunities to anchor a next‑generation air combat platform, though it continues to dominate the current‑generation fighter market through the F‑35.
Valuation remains attractive relative to peers, trading around 17x forward earnings with ~13% upside to consensus price targets, and the company maintains a secure dividend yield near 2.9%. While EPS is expected to grow more than 20% in 2025, this reflects backlog execution and buybacks rather than new program wins. Longer‑term earnings growth is projected to slow as major programs mature, which could limit investor enthusiasm compared to faster‑growing peers.
In short, LMT’s fundamentals remain robust, offering defensiveness and steady cash flow. But absent a major new program win or a reacceleration of growth, the stock risks remaining range bound. We will monitor how OBBBA‑driven awards, backlog execution, and competitive dynamics develop over coming weeks to reassess the risk/reward balance.
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❖ We continue to keep LPL Financial (LPLA) under review. Despite strong fundamentals – including continued advisor additions, rising advisory assets, and efficient capital deployment – the stock has underperformed peers over the past month. This pullback follows a more than 30% rally from April lows, suggesting continued profit-taking.
On July 7, Citi said it opened a “negative 30-day short-term view” on LPL ahead of its Q2 earnings report. Citi expects negative estimate revisions and forecasts Q2 earnings to come in 5% below the consensus estimate. The firm reiterated its “Hold” rating – cut form “Buy” on June 9 – reflecting caution about near-term performance despite the stock’s longer-term prospects.
However, the consensus among top-ranked Wall Street analysts remains positive, with a “Strong Buy” rating and an average target price implying about 11% upside from current levels. Out of recent analyst actions, the majority have upgraded or confirmed their targets or ratings, with only Citi expressing short-term caution.
Given LPL’s recent stock underperformance, contrasting with analyst consensus, we are monitoring whether this reflects a temporary sentiment shift or a more lasting reassessment of near-term growth expectations. We continue to view LPLA as a high-quality wealth management platform – but will watch closely before lifting it from review.
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Portfolio Earnings and Dividend Calendar
❖ The Q2 2025 earnings season kicks off next week with reports from the largest U.S. financial institutions. For the Smart Investor portfolio companies, the “grand opening” comes on July 15, with JPMorgan Chase (JPM), BlackRock (BLK), and Bank of New York Mellon (BK) reporting – and Morgan Stanley (MS) scheduled to release its results on July 16.
❖ The ex-dividend date for Oracle (ORCL) is July 10, while for EMCOR Group (EME) it is July 15.
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New Buy: General Dynamics (GD)
General Dynamics occupies a central role in the aerospace and defense sector, with a presence on land, at sea, in the air, and in digital infrastructure. The company produces combat vehicles – including the Abrams main battle tank – as well as nuclear-powered submarines, surface ships, business jets, and a range of IT and cybersecurity services. Its operations combine manufacturing, engineering, and technology to support the U.S. military and allied forces in maintaining readiness and advancing modernization efforts. General Dynamics stands out for its breadth – a defense jack-of-all-trades with capabilities spanning armored vehicles, undersea deterrence, secure communications, and mission-critical services. As global security demands evolve, its diverse portfolio and consistent execution keep it relevant to both traditional defense priorities and emerging challenges.
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Depth and Breadth
General Dynamics was founded in 1952 through the merger of Electric Boat, Convair, and other assets, creating a diversified defense and aerospace company. Over decades, it became known for building nuclear submarines, combat vehicles, and business jets – core capabilities that remain at its center. Its history reflects steady execution rather than splashy reinvention, but the past five years have been notably transformative.
Since 2020, General Dynamics has sharpened its focus on high-demand defense programs and invested in technologies that expand its relevance in modern military operations. The company’s Marine Systems business secured critical positions in the Columbia- and Virginia-class submarine programs, cementing its role in the U.S. Navy’s nuclear deterrence modernization. In parallel, its Combat Systems segment capitalized on rising demand for Abrams tank upgrades, European armored vehicles, and advanced munitions – leveraging its status as a trusted supplier while adapting to evolving battlefield needs.
Beyond platforms, General Dynamics strengthened its technology and IT services through targeted investments and strategic wins. Its Technologies segment deepened its foothold in secure communications, cloud computing, and artificial intelligence solutions for the Department of Defense and intelligence community, moving further into the core of federal IT infrastructure. During this period it won several long-term contracts with the U.S. Air Force, Navy, Space Force, and other federal departments, reinforcing its role in mission-critical digital operations.
The company has also focused on manufacturing efficiency and supply chain resilience, upgrading production facilities and increasing capacity to meet record backlogs in its Aerospace and Marine segments. Collaborative development with the U.S. military – particularly on submarine construction and satellite communication systems – has positioned General Dynamics not just as a vendor but as an integrated partner in shaping new capabilities.
While General Dynamics historically pursued growth organically, its sustained R&D, operational investments, and entrance into new government programs over the past five years have expanded its influence. By aligning closely with Pentagon priorities, building out next-generation IT and cyber capabilities, and executing against strong demand for submarines, armored vehicles, and business jets, it has reinforced its place at the center of U.S. and allied defense strategy. These developments have collectively enhanced its market share and strategic relevance in an increasingly contested global security environment.
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Arsenal at Scale
General Dynamics delivers platforms, systems, and services that underpin U.S. and allied defense and security operations across domains – land, sea, air, and cyberspace. The company operates through four main segments, each addressing distinct markets with long-term demand drivers.
Aerospace, anchored by Gulfstream business jets and associated services, accounts for approximately 27% of total revenue. It combines commercial aviation demand with specialized military and government missions, supported by a global installed base and service network. Recent FAA and EASA certifications of the G700 and G800 models have opened new growth avenues, while long-standing relationships with corporate and sovereign customers sustain backlog beyond 18 months of production.
Marine Systems, at about 30% of revenue, builds nuclear-powered submarines and surface ships for the U.S. Navy. Electric Boat leads the Columbia- and Virginia-class submarine programs – both central to the U.S. nuclear deterrent – while Bath Iron Works (BIW) in Maine produces surface combatants, notably the Arleigh Burke–class destroyers. Recent multi-billion-dollar contracts and priority designation in U.S. shipbuilding policy ensure visibility well into the next decade.
Combat Systems contributes roughly 18% of revenue, supplying armored vehicles, artillery, and munitions. The Abrams tank remains a flagship product, while European Land Systems has expanded GD’s reach into NATO markets with vehicles like the Piranha and ASCOD. New contracts with Germany and Latvia for these platforms, along with steady U.S. Army upgrade orders, have reinforced this segment’s resilience.
Technologies, comprising the remaining ~25%, delivers secure IT infrastructure, cloud services, AI solutions, and cybersecurity – serving clients such as the U.S. Air Force, Navy, Space Force, and other federal departments. Its role in federal cloud migration, AI-driven analytics, and classified networks positions it in a growing, less cyclical part of defense spending.
General Dynamics’ total addressable market is supported by rising global defense budgets, U.S. modernization priorities, and increasing cyber and maritime competition. Key partnerships – particularly with the U.S. Navy and intelligence community – as well as classified and sole-source agreements, insulate large parts of its backlog from competitive pressures.
The recently enacted “One Big Beautiful Bill Act” (OBBBA) fiscal package has further expanded GD’s earnings potential, directing additional funding into shipbuilding, munitions, and nuclear deterrence – areas directly aligned with its capabilities. This legislation has reinforced GD’s competitive position in the U.S. defense supply chain, ensuring strong demand visibility and priority access to future contracts.
By combining manufacturing scale with mission-critical services, General Dynamics sustains a balanced, opportunity-rich portfolio that aligns closely with U.S. and allied security priorities.
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Figures of Force
General Dynamics began 2025 with strong momentum, delivering first-quarter results that exceeded analyst expectations and reaffirmed its position as a key beneficiary of heightened defense spending. Revenue in Q1 rose 13.9% YoY to $12.22 billion, beating the consensus estimate of about $12.0 billion. Growth was broad-based, with all four segments contributing, but led most strongly by Aerospace.
Diluted EPS reached $3.66, up 27.1% YoY, also ahead of Wall Street’s ~$3.50 forecast. Operating earnings rose 22.4% YoY to $1.27 billion, with operating margin expanding 70 basis points to 10.4%, driven by improved Aerospace efficiency and stable margins in Marine and Combat Systems. Net income rose 24.4% YoY to $994 million.
Free cash flow (FCF) in Q1 was negative at –$290 million, reflecting higher working capital to support production growth but marking an improvement from –$437 million a year ago. Management reaffirmed confidence in full-year FCF normalization as deliveries accelerate in the second half.
By segment, Marine Systems and Combat Systems posted modest 7.7% and 3.5% YoY revenue growth respectively, with stable margins. Technologies grew 6.8% YoY, supported by U.S. federal cloud and cybersecurity projects. Notably, Aerospace delivered a 45% YoY increase as G700/G800 deliveries ramped, and posted 210 basis points of margin expansion to 14.3%, underscoring manufacturing leverage from higher output.
Backlog at the end of Q1 stood at $88.7 billion, covering about 1.8 years of sales – slightly below Q4’s $90.6 billion as rapid Aerospace deliveries outpaced orders. Total estimated contract value, including unfunded options, was $141.3 billion, up from ~$134 billion a year earlier. The backlog remains weighted toward long-term, high-visibility programs such as the Columbia- and Virginia-class submarines, Abrams upgrades, and classified IT contracts.
Looking forward, management guided 2025 revenue to approximately $50.3 billion, implying ~6% YoY growth, and EPS between $14.75-14.85, representing ~8-9% growth over 2024. Analysts currently model $14.80 EPS and $50.2-50.4 billion revenue, broadly consistent with the company’s guidance. Importantly, this guidance was issued before the enactment of the OBBBA, suggesting potential incremental upside as additional defense funding flows into shipbuilding, munitions, and nuclear programs over the next year.
The OBBBA, enacted in July 2025, is expected to materially boost backlog and cash flow over the next 12-24 months by accelerating shipbuilding, munitions, and nuclear deterrence contracts – all areas where GD already maintains strong positions. Management highlighted this legislative tailwind as a key reason for confidence in achieving – and possibly exceeding – guidance in the second half of the year.
In sum, GD’s Q1 results reflect a company executing well across segments, with expanding margins, improving cash flow trajectory, and favorable policy tailwinds supporting visibility into 2026.
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Yielding Strength
GD’s stock has tracked the broader trend in the iShares U.S. Aerospace & Defense ETF over the past year, while ending at a lower total return due to underperformance versus firms like RTX, which surged thanks to its greater exposure to commercial jets, and Northrop Grumman, which benefited from its strength in nuclear missiles and the U.S. show of force with the B-2 stealth bombers. This trend began to reverse after the details of the OBBBA became known, with GD strongly outperforming the aerospace and defense industry over the past month.
Despite the recent gains, GD’s valuations remain among the most attractive in its industry. Although the company’s TTM and expected revenue growth rank second only to the high-flying RTX, its multiples are closer to those of lower-growth peers like Lockheed Martin and Huntington Ingalls.
General Dynamics trades at a small discount to its sector median in terms of GAAP and Non-GAAP P/E ratios, both forward and trailing twelve months, and sits in the lower half of the peer valuation scale on these metrics. Its TTM and forward EV/EBITDA and EV/Sales, as well as its TTM Price/Sales ratio, are around the average level of its peer group. Meanwhile, GD’s Price/Cash Flow is below average, signaling undervaluation relative to its cash generation ability. Its PEG ratio aligns with the peer average, highlighting moderate valuation relative to growth.
While General Dynamics does not have a formal, stated capital return policy, it has reiterated that it prioritizes “investing in the business, maintaining a strong balance sheet, and returning capital to shareholders through a competitive and growing dividend and disciplined share repurchases.”
GD has paid dividends for four decades, raising them annually over the past 33 years – making it a Dividend Aristocrat. Annual dividend increases have averaged about 8% over the past decade, bringing GD’s dividend yield to approximately 2%, well above the sector average.
Moreover, the company returns capital to shareholders through buybacks, although in a discretionary and selective manner, depending on cash flow, valuation, and other capital needs. In Q1 2025, GD’s board authorized a new multi-billion-dollar repurchase program, with authorization remaining at the end of the quarter. During Q1 2025, General Dynamics repurchased $640 million of its own shares, following $1.33 billion in buybacks during Q4 2024, leaving approximately $1.9 billion available under the program.
With disciplined capital returns, consistent dividend growth, and a valuation below its growth potential, GD remains one of the more compelling names in the defense sector.
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Investing Takeaway
General Dynamics is a cornerstone of modern defense and security, delivering platforms and services that span land, sea, air, and cyberspace. Its integrated presence across submarines, combat vehicles, aerospace, and secure IT makes it essential to U.S. and allied defense priorities. With deep ties to long-cycle military programs and classified federal infrastructure, GD benefits from structural drivers like nuclear modernization, maritime deterrence, and cyber resilience – all reinforcing its market position. A balanced portfolio, resilient backlog, and proven execution underpin durable growth across budget cycles. Its disciplined capital allocation, strong shareholder returns, and undemanding valuation add stability and upside potential. For investors seeking exposure to the defense-industrial backbone, GD offers a compelling blend of strategic importance, operational strength, and shareholder-friendly discipline.
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New Sell: The Progressive Corp. (PGR)
Progressive has long stood out as one of the more disciplined and capable players in U.S. auto and property insurance, known for its strong underwriting culture, telematics leadership, and market share gains. Over the past year, the stock delivered exceptional returns – up nearly 50% in 2024 and still ahead of the S&P 500 year to date – outperforming peers and validating its execution.
But the environment is changing. Morgan Stanley recently downgraded the stock, noting that the drivers behind its prior outperformance – peak margins, pricing power, and favorable competitive dynamics – are now dissipating. Competition in auto is intensifying, rate momentum is softening, and margins are coming down from cyclical highs. Barclays and others have also expressed caution on underwriting trends heading into the second half, pointing to an unfavorable mix shift and more pressure on profitability.
On top of these structural headwinds, Progressive now faces heightened near-term risks from the catastrophic Texas floods in July 2025. The event, which inflicted widespread damage across key markets, is expected to drive a surge in auto and possibly property claims. While Progressive has limited its new homeowners exposure in Texas, the state remains a significant source of business and weather-related losses have already weighed heavily on results in recent years.
Valuation also looks full relative to peers, even after recent underperformance following the Trump “Liberation Day” tariff shock. The stock’s premium assumes continued execution at near-peak profitability, yet both the competitive backdrop and catastrophic risk environment suggest earnings may struggle to sustain that level.
This sale is not a repudiation of Progressive’s underlying franchise – which remains solid – but a recognition that the stock has already reflected much of the good news, while incremental risks have risen. With better risk/reward opportunities in other names, it makes sense to lock in gains here and reallocate before further pressures weigh on sentiment. We will reassess Progressive if and when competitive pressures ease, weather-related losses stabilize, and the company demonstrates an ability to sustain growth and margins at more attractive levels.
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Smart Investor’s Winners Club
The 30% Winners Club includes stocks from the Smart Investor Portfolio that have risen at least 30% since their purchase dates.
Markets have been mostly in the green over the past week, and our Winners list has expanded to 14. These are: GE, AVGO, ORCL, ANET, HWM, EME, TSM, APH, IBKR, TPL, PH, CRWD, IBM, and UBER.
The first contender for the Club’s entry is now CSCO with a 17.21% gain since purchase. Will it gain the rite of passage, or will another stock outrun it to the finish line?
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Disclaimer
The information contained in this article represents the views and opinions of the writer only, and not the views or opinions of TipRanks or its affiliates and should be considered for informational purposes only. TipRanks makes no warranties about the completeness, accuracy, or reliability of such information. Nothing in this article should be taken as a recommendation or solicitation to purchase or sell securities. Nothing in the article constitutes legal, professional, investment and/or financial advice and/or takes into account the specific needs and/or requirements of an individual, nor does any information in the article constitute a comprehensive or complete statement of the matters or subject discussed therein. TipRanks and its affiliates disclaim all liability or responsibility with respect to the content of the article, and any action taken upon the information in the article is at your own and sole risk. The link to this article does not constitute an endorsement or recommendation by TipRanks or its affiliates. Past performance is not indicative of future results, prices, or performance.
