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5 Big Winners From Simmering Tension in the Middle East

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Iran recently struck back at the United States after its top general was killed in a U.S. airstrike at Baghdad’s airport. Iran fired a series of ballistic missiles at two military camps in Iraq housing American troops.

The strikes raised concerns of a flare-up in tensions between the long-term foes — Iran and Iraq. Previously, President Trump had threatened “disproportionate” attacks in case of any retaliatory move by Iran. Trump also threatened sanctions against Iran if it expels U.S. troops.

Tensions had been increasing steadily across the Middle East following Trump’s decision to unilaterally withdraw from Tehran’s nuclear agreement with world powers. What’s more, the recent attacks between Washington and Tehran have been direct and the war is no longer a proxy one. This, undoubtedly, has raised chances of an open conflict between the countries, which have been at loggerheads since Iran’s 1979 Islamic Revolution and the subsequent takeover of the U.S. Embassy.

Nonetheless, investors might see a lot of gyrations in the broader stock market. After all, geopolitical tensions affect economic growth. All the major U.S. benchmarks are widely expected to remain in the red as investors apprehend that the United States will retaliate following Iran’s missile attacks.

How to Play the Middle-East Crisis?

In such times, investors might want to consider traditional safe-havens like utilities. Such stocks are generally non-cyclical or companies whose performance and sales are not highly correlated with activities in the broader market. Their products are in constant demand, irrespective of market conditions.

Investors can also look out for defense stocks. After all, such stocks tend to rally when geopolitical tensions rise, banking on a possible uptick in defense contracts. Most importantly, defense stocks tend to outperform the broader market for the six months following a major conflict.

From the Gulf War, 9/11 attacks to 2003 U.S. invasion of Iraq, defense stocks have outperformed the broader S&P 500 in the six months following such turmoil.

 

 

(Source: Bloomberg)

 

By the way, unrest in the Middle East could affect supplies of crude oil through the Strait of Hormuz. Nearly 22.5 million barrels of oil pass through the Strait of Hormuz each day since the beginning of 2018, which is roughly 24% of the world’s daily oil production. So, any disruption can lead to supply-demand disparity, eventually leading to elevated oil prices.

West Texas Intermediate crude was up 4% in electronic trading on Jan 7, while the global benchmark, Brent crude rose more than 4%. And with oil prices going up, shares of energy players, including bigwig oil producers, rig operators and pipeline owners, have followed suit. Hence, adding a solid energy player to your portfolio that can make the most of this bullish oil market seems judicious.

And as crude oil prices move north, prices of essential goods and commodities increase. And value of gold rises when inflation picks up. After all, it acts as a hedge against inflation. In fact, theoretically, more than 60% of the time, gold and crude oil have a direct relationship. Thus, with oil prices moving north, shares of gold mining companies are poised to gain traction.

5 Big Gainers

We have, thus, selected five solid stocks from the aforesaid winning areas in the wake of the Middle-East crisis. These stocks also flaunt a Zacks Rank #1 (Strong Buy) or 2 (Buy).

The AES Corporation (AES - Free Report) operates as a diversified power generation and utility company. The company has a Zacks Rank #1. The Zacks Consensus Estimate for its next-quarter earnings has moved up 3.2% over the last 90 days. The company’s expected earnings growth rate for the current quarter and year are 5.6% and 8.1%, respectively. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Southern Company (SO - Free Report) engages in the generation, transmission and distribution of electricity. The company has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings has risen 1.6% over the last 90 days. The company’s expected earnings growth rate for the current quarter is 20%.

Lockheed Martin Corporation (LMT - Free Report) , a security and aerospace company, engages in the research, design, development, manufacture, integration, and sustainment of technology systems, products, and services. The company has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings has climbed 1.9% over the last 90 days. The company’s expected earnings growth rate for the current quarter and year are 13.2% and 22.9%, respectively.

Callon Petroleum Company (CPE - Free Report) , an independent oil and natural gas company, focuses on the acquisition, development, exploration, and exploitation of unconventional onshore oil and natural gas reserves in the Permian Basin in West Texas. The company has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings has moved up 1.4% over the last 60 days. The company’s expected earnings growth is for the current and next quarters are 23.5% and 56.3%, respectively.

New Gold Inc. (NGD - Free Report) , an intermediate gold mining company, engages in the development and operation of mineral properties. The company has a Zacks Rank 2. The Zacks Consensus Estimate for its next-year earnings has moved 100% north over the last 30 days. The company’s expected earnings growth rate for the next quarter is 166.7%.

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