Goldman's 6 Best Industrial Stocks for 2011

5. Lockheed Martin (LMT) is among the largest aerospace and defense companies, with a market capitalization of $28 billion.

Its stock has rallied 11% in the past three months, but Goldman ranks it "sell" and expects 14% of downside to $70. Lockheed delivered solid quarterly results, with earnings per share of $2.11, exceeding Goldman's $2.05 forecast and the consensus estimate of $2.07. Still, declining segment profit and margin erosion are ongoing concerns for Goldman. The quarterly book-to-bill ratio came in strong at 1.6.

Goldman lifted its price target from $63 to $70 as the report lessened its degree of pessimism. On the basis of valuation, Lockheed is ostensibly attractive, costing 9.5-times forward earnings and 7.9-times cash flow, 42% and 25% industry discounts. But, in Goldman's view, value doesn't compensate investors for the company's growth deficiency. With "ongoing expectation for increased pressure on defense spending and contractor margins (potentially over an extended period of time), it is challenging to see any meaningful growth in the near to medium term."

Lockheed's operating margin declined from nearly 12% to 8.8% during the fourth quarter. Lockheed's 12-month earnings per share growth rate ranks in the 36th percentile for the aerospace and defense industry. Its gross margin ranks in the eighth percentile. The stock receives "buy" ratings from just 28% of analysts, indicating poor sentiment on Wall Street.

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