I do not often write about single stocks, but I will if it is obvious to me that there is a clear thesis to back.
Right now, the headlines are all about the Russia / Ukraine conflict.
The market is saying that it is all over for Putin and he will have to back out of Ukraine. There are, of course, other positive resolutions that would work out the same and all of them would be most fortunate but countries that commit themselves to war do not often turn tail in mere days and give up.
It is not impossible, but it all seems very unlikely to me that this situation will prove to be a blip. However, it appears that the markets are suddenly sanguine about how the future plays out, marking down commodities like gold, silver, oil, etc., as if the only way forward is peace.
Anything short of withdrawal is going to be an awful mess. It seems hard to imagine a situation where normality breaks out when Russia is under sanctions and Putin is always in the frame to threaten westward.
With this in mind, there is a single call to make: is Putin going or not? If yes, then there is plenty of room for repair. If he is not replaced, whatever happens next will be a huge stalemate because he will never be forgiven.
A stalemate will mean a huge rearmament in Europe because of the EU’s and NATO’s need to put up hugely robust defenses against a proven menace.
There is a big selection out there who will benefit from that and all sorts of narratives to spin but here are two UK and two US stocks which are no-brainers, and you can see the pop in their stock prices caused by the Russian invasion. Yet one thing is clear, they have not exactly gone to the moon. If a sudden peace is not on the way, then the only direction is up for these shares.
BAE Systems (BAESF)
BAE Systems is the quintessential UK military contractor. It has a 13 p / e, roughly one times sales and even has a 3.5% dividend. There is hardly any sign of WW3 in its share price.
… Nor is there in Chemring.
Chemring Group (CMGMF)
Chemring makes things that go whoosh and things that go bang and systems that try to avoid such ‘energetics.’
This is an unsophisticated speculation, you either believe your doom-scrolling or you do not. If you do, then this kind of company is going to do very well because the current dire news suggests that the future holds business as usual.
There are some amazing military companies in the US, but here are two colossi.
Northrop Grumman (NOC)
For sure the money is going to be in war planes. If the west goes for rearmament, and it seems hard to imagine it will not unless a miracle of peace showers down, then the latest airpower is going to be where the billions go, because you can not switch this kind of supply on and off. War planes are the tip of an enormous and vastly expensive spear.
Yet compared to your average sizzling trillion-dollar tech company, Northrop Grumman is almost a minnow.
If this chart does not scream “relax it’s not going to happen,” then exactly what is going on? However, the market can be wrong, and if it is, an investor should be up to their gills in a stock like this.
… Then there is:
Lockheed Martin (LMT)
This stock has ap / e of 20 and a dividend of 2.55% and a price barely above its high of 2020. A NATO rearmament with any urgency at all would soon see a big hike to its $ 67 billion in sales.
You can, of course, go on about this plane or that tank or weapons system, but the bottom line is, these charts – and those of the precious metals, crypto and commodities – say there is no significant escalation on the cards in Ukraine and for that matter little in the way of crisis ahead, let alone WW3.
I hope the market is right because it certainly is not pricing escalation or even a quagmire of conflict ahead. It’s up to the individual investor to make their mind up if this can be true because lack of crisis seems priced in by markets, but you would never guess that from the media.
Let’s hope the markets are correct; for me, it will be a very positive surprise if they are.