Government Shutdown Avoided, Qualcomm’s Victory, Lockheed’s Big Win: Our Take

Exiting last week, a few uncertainties were weighing on the market and investor sentiment, and one of them was a potential government shutdown. Late Friday and Saturday, a deal was put into place that would fund the government through mid-March, and with President Biden’s signature, while we have avoided another shutdown, we're kicking the can down the road yet again. The debt ceiling is poised to be an issue that bubbles back up, potentially as soon as June depending on what is hammered out by mid-March.

For now, however, a shutdown has been avoided, which takes some tension out of the market as we kick off an abbreviated trading week that will no doubt be characterized by slower volumes. Still, considering the political drama of the last few days, it suggests it may not be 100% smooth sailing for President Trump’s second-term agenda. Healthy tension and discussion are one thing, but a fractured Republican party could mean more than a few similar scenes as what we witnessed the last few days.

When it comes to Washington, we’ll do what we’ve done in the past — track the developments and position the portfolio based on how the chips land.

Qualcomm’s Court Win Over Arm

Late Friday, Qualcomm QCOM prevailed in its licensing dispute with Arm Holdings ARM, with a Delaware court ruling Qualcomm had a valid license to use Arm’s basic chip architecture for chips developed following its acquisition of Nuvia. This clears Qualcomm to pursue the AI PC market as part of its larger revenue diversification strategy and removes an overhang that has been on the shares for the last several weeks.

Our view has been that as Qualcomm makes progress on its revenue diversification plan, tapping into the AI PC, IoT, and auto chip markets to lessen its smartphone reliance, Wall Street will need to re-think how it values the shares. We see this ruling beginning that process, and with a little bit of room still, in the portfolio’s QCOM position, we’ll aim to pick up a few more shares later today.

Lockheed’s F-35 Program Win

In Friday’s Monthly Roundup, we discussed how the cumulative pressure in recent weeks on Lockheed Martin LMT shares led to not only a correction but the stock becoming deeply oversold. In addition to what we’ll call some sobering developments over the weekend about the Trump agenda that should bring some relief to LMT shares, the Pentagon awarded Lockheed a roughly $11.8 billion contract to continue production of the F-35 Joint Strike Fighter.

The award covers 145 copies of the tri-variant fighter between the U.S. Air Force, Marine Corps, and Navy as well as foreign customers. The contract is undefinitized, meaning dollar values and quantities could change as negotiations continue, and only covers production lot 18 of the stealth fighter. The Pentagon is expected to finalize the lot 18 contract in the spring and early indications are a similarly undefinitized, contract for lot 19 production when the fiscal 2025 budget is approved tentatively in March.

We see this combination as a nice catalyst for LMT shares, and we plan on adding a few more when the market opens later this morning.

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At the time of publication, TheStreet Pro Portfolio was long QCOM and LMT.