Stocks to Own as Middle East Tensions Rise: XOM, CVX, HAL & LMT

 

Tensions in the Middle East have been high in recent months, and the situation spiked over the weekend after an attack on Saudi Arabia hit the world’s largest oil exporter hard, and knocked out around 5% of global oil production.

Houthi rebels inside Yemen claimed responsibility for the attack, but the U.S. has instead placed blame on Iran. Iran has denied any responsibility in the attack, but if the U.S. is able to provide proof of Iran’s involvement there could be serious retaliation as President Trump has already tweeted that the U.S. is “locked and loaded” depending on verification of Iran’s involvement.

The initial impact on oil prices following the attack on Saudi Arabia was crude prices jumping 10%. It remains unclear how long it will take for Saudi Arabia to get back to full capacity, but the real concern is if the weekend attack will lead to further military actions in the region which could have a much deeper impact on oil.

It is a very dangerous situation right now, and the market is reacting with the major indexes all trading in the red. Any increase in tension in the region will put pressure on the overall market, but there are some stocks that would benefit. Here are a few that stand to gain.

Exxon Mobil (XOM)

Any tension in the Middle East will result in higher oil prices. The recent attacks on Saudi Arabia that knocked out half of the nation’s oil output pushed oil prices 10 percent higher. Oil and gas companies like Exxon Mobil (XOM) rallied on the run up. It is rare to see an event push oil prices so sharply higher, but ongoing tension in the region will continue to prop crude prices higher. XOM has trended lower since the start of the summer, but the stock has begun to recover over the last month. XOM has an attractive valuation with shares trading at just 15 times future earnings, and profits forecast to rise 9.7% per annum over the next five years. Exxon last reported in August with big beats on both the top and bottom line, and the company will not report again until November 1.

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Chevron (CVX)

Big oil always benefits from tensions in the Middle East and any potential disruption to global oil supplies. While the U.S. has boosted its oil output in recent years, the Middle East is still the top producing region in the world, and even a small hit to production in the region can have major implications around the globe. Chevron (CVX) stock jumped 3% in the wake of the Saudi attack and remains an attractive value with a forward P/E of 15. Earnings growth has been modest at Chevron with profits up 4.4% per annum over the last five years, and analysts forecast more of the same moving forward with earnings expected to rise at an annual rate of 4.2% over the next five years. The big jump in crude following the recent attack in Saudi Arabia will ease as the nation’s production comes back online, but ongoing tensions in the region will keep strength in crude and would lead to stronger than expected growth moving forward for all the major oil and gas companies.

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Halliburton (HAL)

Halliburton (HAL) is a leader in oil and gas equipment and services. Any military outbreak in the Middle East would result in attacks on oil fields like the one over the weekend in Saudi Arabia, and Halliburton will be a top contender on contracts to rebuild infrastructure. The stock jumped 6% following the attack on Saudi Arabia, and with HAL down sharply over the last 12 months there is a lot of upside in the stock as tensions in the Middle East rise. With HAL down 49% from its 52-week high there is a lot of value in the stock at this time. HAL is currently trading at just 12.5 times future earnings. Profits are expected to rise at a modest annual rate of 1.4% over the next five years, which justifies the low valuation, but additional attacks in the region could lead to significantly higher revenues for the company.

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Lockheed Martin (LMT)

Lockheed Martin (LMT) is an aerospace and defense contractor. Lockheed Martin has traded steadily higher in 2019, and with rising global tensions defense stocks should remain a strong sector of the market. The U.S. came close earlier in the year to launching an attack on Iran after it shot down a U.S. drone, and if clear evidence emerges that Iran had a part in the attack over the weekend on Saudi Arabia, Trump may decide that now is the right time to make his move. Any military escalation, whether it be against Iran or any other nation in the region would lead to a quick jump in military stocks. LMT is attractive at just 15 times future earnings and analysts forecast the company to grow profits at an annual rate of 14.5% over the next five years. The company reported better than expected earnings and sales both of the last two quarters, and the company will next report on October 22.

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Symbols: CVX HAL LMT XOM
Michael Fowlkes

Michael Fowlkes

Michael Fowlkes is a financial writer who has been with the Fresh Brewed Media family since 2004. Over the course of his tenure with Fresh Brewed Media, he has worn many hats, including portfolio manager, options analyst, and writer. Michael received his undergraduate degree from Virginia Tech in Accounting and got his start in finance working as a stock trader for six years at Chase Investment Counsel in Charlottesville, Va.

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