How International Wars Impact Financial Markets
Wars are, unfortunately, a constant. And it’s a sad reflection on humanity that companies and individuals can profit from conflict. The current international turmoil is sending shockwaves through the global economy, impacting everything from currency exchange rates to the performance of specific industries. Today, we’re exploring the complex relationship between war and finance. After that, we’ll take a glance at the top tradable events this coming week.
Count the conflicts
It’s difficult to keep track of all the conflicts that are going on around the world, currently.
Aside from the various, devastating ongoing national and regional conflicts in Africa, right now we’re experiencing major conflicts on a scale unheard of, including flare-ups in the following:
● Russia vs. Ukraine (backed by Western allies)
● Israel vs. Hamas
● Israel (supported by US, UK) vs. Iran
● West (chiefly US, UK) vs. Houthi rebels in Yemen
● West (chiefly US, UK, France) vs. Islamic State in MENA (Somalia, Syria, Iraq)
The latest unravelling of Middle Eastern peace last week saw Iran attack Israel with 300 missiles and drones, following Israel’s strike on the Iranian embassy in Syria. This attack was repelled, with 99% of the missiles being shot down by Israeli, US and UK forces before reaching their targets. Israel retaliated, attacking Isfahan on Friday.
This latest rise in hostilities and the long list above it, is exactly why the US fiscal National Defence Authorization Act 2024 requested $886.3 billion in US defence spending for this year, an increase of 3.3% year-over-year.
Ultimately there is only one winner. Defence companies and those who invest in them.
4 Defence stocks that are booming right now
Let’s look at some of the largest defence companies looking to profit from the current situation.
1. Lockheed Martin (LMT)
Current price: 463.87 USD
YTD: +1.70%
1 Year Performance: -3.87%
5 Year Performance: +41.28%
LMT stock, 2024
Source: Google
Lockheed Martin is an American aerospace defence giant, founded in 1995 through the merger of Lockheed Corporation and Martin Marietta. It has since solidified its position as a leader in the industry. Headquartered near Washington D.C., Lockheed Martin boasts a workforce of over 115,000 employees.
LMT stock has made steady gains in 2024 so far. 2023 was a bit of a bust year for the company, with growth hindered by heavy investment in a classified missile programme. This has been compounded by the news that the company would only deliver 75 to 110 F-35 fighter aircraft in 2024, following missing the target in 2023, delivering only 98 of the 120 promised.
But all of that comes on the back of the previous 4 years being absolute stonkers, with the stock price up over 41% since 2019. With only modest growth in 2023, and plenty of demand, LMT stock probably looks quite attractive to certain investors right now.
2. General Dynamics Corp. (GD)
Current price: 288.62 USD
YTD: +11.61%
1 Year Performance: +28.26%
5 Year Performance: +62.08%
GD stock, 2024
Source: Google
The General Dynamics Corporation produces a range of vehicles and systems specifically for the US military, including combat vehicles, submarines, surface ships, aircraft, and weapons systems. The American company has 100,000 employees worldwide.
Lockheed Martin may be a more efficient and profitable company, but it’s not growing as fast as General Dynamics.
Compared to Lockheed Martin, the company has a clear growth advantage at the moment. It also has multiple revenue streams outside government contacts, like its private-sector aerospace segment. This sector can grow relatively unconstrained thanks to not being beholden to government spending approvals and the political delays that may come with them.
3. KBR Inc. (KBR)
Current price: 62.67 USD
YTD: +12.11%
1 Year Performance: +9.91%
5 Year Performance: +182.81%
KBR stock, 2024
Source: Google
KBR Inc., formerly Kellog Brown & Root, is headquartered in Houston, Texas, and has over 20,000 employees worldwide. The company’s government solutions segment is in line to get a boost from the ramp-up of the $20B Homesafe project in mid-2024.
KBR stock is already outperforming 2023 growth. The company has seen a nice streak of beating earnings estimates, especially when looking at the previous two reports. The average growth for the last two quarters was 2.11%.
Like General Dynamics, KBR’s business is not wholly tied to government contracts, quite the opposite. Because it’s an “engineering company” first and a “defence contractor” second, its major customers come from the petro-chemical industry — international and national oil and gas companies, independent refiners, petrochemical producers, and fertiliser producers and manufacturers.
That stock performance over the last 5 years is enough to make any investor jump for joy!
4. Leidos Holdings Inc. (LDOS)
Current price: 124.91 USD
YTD: +15.66%
1 Year Performance: +36.14%
5 Year Performance: +87.69%
LDOS stock, 2024
Source: Google
Leidos Holdings Inc. provides a range of services to US government and commercial clients, including engineering, logistics, information technology, and scientific research. Leidos has over 38,000 employees worldwide.
Outside the United States, the company’s international customers include foreign governments and their agencies, primarily located in the United Kingdom, the Middle East and Australia.
The company was recently awarded a new prime contract to perform aviation training services and operations support for the Army National Guard. With a 5-year stock performance almost in triple figures, it seems business is good at home and abroad.
War never changes
It’s clear to see the influence of near-constant conflict on defence and infrastructure companies like those listed here. Sadly, that also means that a profit can be made from savvy investment in these “war stocks”.
On a macro scale, the circumstance of having so many simultaneous conflicts can bring an air of panic to the markets that usually thrive on stability and predictability. This can mean pulling money out of other stocks, particularly those tied to sectors directly impacted by the conflict, and seeking refuge in “safe havens” — assets perceived as less volatile during turbulent times.
Gold prices have increased 15.9% since January, and that’s a sign that the markets at large are starting to get twitchy.
Source: BullionVault
Your thoughts?
Are you investing in defence stocks? Have you stocked up on your safe havens? Let us know over on X: @_contentworks.
Top fundamental events week commencing 22/04/24
It looks like a fairly busy week in the markets. Here’s what’s in store.
Monday
No major events are planned.
Tuesday
● EUR — German HCOB Manufacturing PMI Flash
Wednesday
● AUD — Inflation Rate YoY
● EUR — German Ifo Business Climate
● USD — Durable Goods Orders
Thursday
● EUR — German GfK Consumer Confidence
● USD — GDP Growth Rate QoQ Adv
Friday
● JPY — BoJ Interest Rate Decision
● USD — Core PCE Price Index MoM; Personal Income Spending MoM; UoM Consumer Sentiment Index
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The Contentworks team
