In this article, we discuss 10 war stocks to buy now according to hedge funds.
Inflation in the United States is already at a four-decade high and the Russian invasion of Ukraine has aggravated the economic crisis, pushing the prices of energy and fertilizers even higher. Sweeping Western sanctions on Moscow, which have so far excluded energy and fertilizers, have given Russians the opportunity to limit exports, hitting the West where it hurts. With neither side willing to back down, it seems like the stock market will have to adjust to a new reality where the seamless flow of money across the globe is disrupted, at least temporarily.
Major Geopolitical Realignment Hits Finance World
According to analysts at Citibank, the Ukraine war has resulted in a major geopolitical realignment that is similar to the aftershocks from the 9/11 terrorist attacks. The stock market in Russia has been closed since the invasion, after the US sanctioned the five largest Russian banks. The interest rate in Russia was hiked by more than 20% the day after the sanctions took effect. Businesses in the West are scrambling to find alternatives to Russian links to meet government standards.
In the wake of the unfolding economic situation, shrewd investors can place their bets on certain key stocks that are likely to generate higher returns in this war situation. Some of the top war stocks to buy according to hedge funds include Raytheon Technologies Corporation (NYSE:RTX), Exxon Mobil Corporation (NYSE:XOM), and Barrick Gold Corporation (NYSE:GOLD), among others discussed in detail below.
Our Methodology
The companies that stand to gain the most from a war-like situation around the globe were selected for the list. Data from around 900 elite hedge funds tracked by Insider Monkey at the end of December 2021 was used to identify the number of hedge funds that hold stakes in each firm.
War Stocks to Buy Now According to Hedge Funds
10. Intrepid Potash, Inc. (NYSE:IPI)
Number of Hedge Fund Holders: 8
Intrepid Potash, Inc. (NYSE:IPI) produces and sells potash and langbeinite products. In the wake of the Russian invasion of Ukraine, potash supplies from Belarus, a key ally of Russia, have been hit, driving up prices across the globe. Potash is a primary ingredient in fertilizers and crops in the US and Brazil rely heavily on these fertilizers during the growing season. US-based potash producers like Intrepid Potash, Inc. (NYSE:IPI) will benefit from this surge in prices.
Elite hedge funds hold large stakes in Intrepid Potash, Inc. (NYSE:IPI). At the end of the fourth quarter of 2021, 8 hedge funds in the database of Insider Monkey held stakes worth $26 million in Intrepid Potash, Inc. (NYSE:IPI), compared to 10 in the previous quarter worth $19 million.
Just like Raytheon Technologies Corporation (NYSE:RTX), Exxon Mobil Corporation (NYSE:XOM), and Barrick Gold Corporation (NYSE:GOLD), Intrepid Potash, Inc. (NYSE:IPI) is one of the stocks benefiting from rising geopolitical tensions.
In its Q4 2020 investor letter, Bumbershoot Holdings LP, an asset management firm, highlighted a few stocks and Intrepid Potash, Inc. (NYSE:IPI) was one of them. Here is what the fund said:
“From an investment perspective, Intrepid Potash (IPI:NYSE) struggled right off the bat, down roughly -30% in Jan-Feb. Intrepid, despite being a significant drag on returns for most of the year, recovered at the very end of December and was a non-material contributor.”
9. Lithium Americas Corp. (NYSE:LAC)
Number of Hedge Fund Holders: 19
Lithium Americas Corp. (NYSE:LAC) is a Canadian resource firm focused on lithium deposits. Lithium is a key raw material for use in electronic products, including advanced military and aerospace equipment. In the wake of the Russian invasion of Ukraine, the demand for high-tech military hardware is likely to increase, resulting in a higher demand for lithium. This will likely drive up prices and benefit companies like Lithium Americas Corp. (NYSE:LAC).
Lithium Americas Corp. (NYSE:LAC) is one of the top lithium stocks on Wall Street. Among the hedge funds being tracked by Insider Monkey, Singapore-based investment firm Himension Capital is a leading shareholder in Lithium Americas Corp. (NYSE:LAC), with 2.3 million shares worth more than $68 million.
In its Q1 2021 investor letter, Massif Capital, an asset management firm, highlighted a few stocks and Lithium Americas Corp. (NYSE:LAC) was one of them. Here is what the fund said:
“Lithium Americas: The volatility noted above in Lithium Americas Corp. (NYSE:LAC) has resulted in solid returns via our options trades around our core equity position. At the current time, we are short calls on LAC, as we have done multiple times throughout the position’s life, expiring on May 21, 2021, at a $17.5 and $22.5 strike price. The volume of contracts sold at each strike corresponds to the size of the equity position we want should the calls expire in the money, and the underlying equity gets called away from us. The thought process behind this trade construction is that if we know the size of the position we want at a particular price point, there is no reason not to accumulate additional returns by pre-selling the stock we would have sold anyway.
High levels of volatility positively impact the price of options, increasing the premium we can earn from selling covered calls. To date, we have sold covered calls on Lithium Americas Corp. (NYSE:LAC) that have expired worthless four times, yielding a roughly 7% return on the equity position’s current value or 71bps for the portfolio overall. The outstanding covered calls appear to be trending towards a similar worthless expiration. If they do, the covered call trades on LAC will result in us owning the shares with committed capital of -$0.28 per share.
Although we believe in the fullness of time Lithium Americas Corp. (NYSE:LAC) warrants a $30+ valuation, the prices achieved in early January of this year were not justified by the underlying fundamentals. Some will argue we should have sold down our position. We had already established our option positions and believe LAC is an emerging major in the lithium mining industry. Thus, we decided to maintain the position unchanged. Although still relatively high, the current $15 per share valuation is not crazy compared to where we think the firm should be trading based on fundamentals, so we are no longer overly concerned with the position as is.
Lithium Americas Corp. (NYSE:LAC) management also took advantage of the volatility issuing stock on January 22 for $22 a share. The ~$400 million in proceeds will be used to develop Thacker Pass, the US-based clay lithium deposit, which will likely be the largest producing Lithium mine in America when turned on. In our opinion, the stock issuance could not have come at a better time. LAC management has advanced the project through various development stages (de-risking), but with the share issuance, they have significantly reduced the need to bring in an outside partner to develop the asset as the first phase of the project is expected to cost roughly $581 million. After-tax and at an 8% discount rate, the Thacker Pass project’s present value is approximately $2.6 billion (the firm’s current market capitalization is $1.5 billion). Although the share issuance was dilutive, increasing the total shares by 17%, we believe it will, in the long run, prove a forward-looking, value-additive decision by management.
The lithium market remains an area of interest and focus for us. This reflects our belief that the most exciting investment opportunities to capture secular trends in EV’s and batteries are found upstream in the mining industry. It is also a reflection that there is a greater diversity of lithium investment opportunities relative to other battery metals.”
8. Northrop Grumman Corporation (NYSE:NOC)
Number of Hedge Fund Holders: 33
Northrop Grumman Corporation (NYSE:NOC) is an aerospace and defense firm. Hedge funds have been piling into the stock in the recent months. At the end of the fourth quarter of 2021, 33 hedge funds in the database of Insider Monkey held stakes worth $561 million in Northrop Grumman Corporation (NYSE:NOC), up from 29 in the preceding quarter worth $910 million.
On January 28, Susquehanna analyst Charles Minervino kept a Positive rating on Northrop Grumman Corporation (NYSE:NOC) stock and raised the price target to $437 from $416, noting the favorable portfolio of the firm in the context of US defense priorities in the long-term.
Among the hedge funds being tracked by Insider Monkey, Texas-based investment firm Yacktman Asset Management is a leading shareholder in Northrop Grumman Corporation (NYSE:NOC), with 442,198 shares worth more than $171 million.
In its Q4 2020 investor letter, Artisan Partners Limited Partnership, an asset management firm, highlighted a few stocks and Northrop Grumman Corporation (NYSE:NOC) was one of them. Here is what the fund said:
“New purchases include Northrop Grumman Corporation (NYSE:NOC). Northrop Grumman is a leader in manned aircraft, unmanned aircraft, spacecraft and missile-defense systems. We initiated a position in November 2020, as we believe the name is trading at an undeserved discount, despite having the potential to accelerate revenue over the next 24 months. In 2020, Northrop Grumman Corporation (NYSE:NOC) signed a contract to work with the US Air Force on their Ground Based Strategic Deterrent (GBSD) and B21 bomber. We believe the company’s portfolio is well-positioned with a highly desirable space segment business, significant classified content and GBSD driving growth. While the market has been focused on a “blue wave” risk to the defense budget, the industry is typically driven by threat assessment rather than budget constraints. If budget cuts were ever to affect the US Army, that customer represents less than 10% of the company’s revenue. This reinforces our belief that Northrop Grumman Corporation (NYSE:NOC) is well-positioned for the future and trades at an attractive valuation.”
7. Nutrien Ltd. (NYSE:NTR)
Number of Hedge Fund Holders: 36
Nutrien Ltd. (NYSE:NTR) markets fertilizers and agricultural chemicals. Hedge funds have been loading up on the stock. At the end of the fourth quarter of 2021, 36 hedge funds in the database of Insider Monkey held stakes worth $869 million in Nutrien Ltd. (NYSE:NTR), up from 30 in the preceding quarter worth $853 million.
Since the Russian invasion of Ukraine, fertilizer prices have almost doubled. Russia is the largest fertilizer exporter in the world and although Western sanctions have excluded fertilizers, Moscow is threatening to limit exports at a crucial time for crop season in the US and Brazil. This could push prices up even further, benefiting local fertilizer manufacturers like Nutrien Ltd. (NYSE:NTR).
In its Q1 2021 investor letter, Miller/Howard Investments, an asset management firm, highlighted a few stocks and Nutrien Ltd. (NYSE:NTR) was one of them. Here is what the fund said:
“For the most part, performance of the stocks within the Income-Equity Strategies was skewed towards the high-performing market sectors with two exceptions – our consumer discretionary and technology stocks both did better than their broad market peers… We bought Nutrien Ltd. (NYSE:NTR), a producer of fertilizer, which we believe should benefit from increasing crop prices.”
6. Lockheed Martin Corporation (NYSE:LMT)
Number of Hedge Fund Holders: 42
Lockheed Martin Corporation (NYSE:LMT) is a security and aerospace firm. The stock has jumped since the Russian invasion of Ukraine as the US and Europe increase military spending to safeguard against threats from Moscow. The US is also supplying the Ukraine government with arms made by Lockheed Martin Corporation (NYSE:LMT), a source of revenue for the firm that could increase as the war prolongs.
Lockheed Martin Corporation (NYSE:LMT) is one of the favorite defense stocks in the hedge fund universe. Among the hedge funds being tracked by Insider Monkey, New York-based firm Millennium Management is a leading shareholder in Lockheed Martin Corporation (NYSE:LMT), with 399,809 shares worth more than $142 million.
Alongside Raytheon Technologies Corporation (NYSE:RTX), Exxon Mobil Corporation (NYSE:XOM), and Barrick Gold Corporation (NYSE:GOLD), Lockheed Martin Corporation (NYSE:LMT) is one of the stocks that elite investors are buying as war clouds gather over Europe.
In its Q4 2020 investor letter, RiverPark Advisors, LLC, an asset management firm, highlighted a few stocks and Lockheed Martin Corporation (NYSE:LMT) was one of them. Here is what the fund said:
“Despite better-than-expected third quarter results, LMT shares were weak for the quarter as defense spending is expected to be flat for the coming year. With a record $150 billion backlog and almost 30% of its revenue coming from building F-35 aircraft with deliveries forecast to reach 180 per year in 4-5 years (3Q’s revenue upside was from the F-35), we believe LMT should grow at a higher rate than overall defense budget growth and Street expectations over the next several years. Further, strategic acquisitions (LMT acquired AJRD for $4 billion in late December), debt pay down, a 3% dividend yield, and continued share buybacks from $6 billion per year of free cash flow should lead to even greater shareholder returns.”
5. Barrick Gold Corporation (NYSE:GOLD)
Number of Hedge Fund Holders: 46
Barrick Gold Corporation (NYSE:GOLD) is a resource firm with prime interests in gold and copper. The hedge fund sentiment around the stock is positive. At the end of the fourth quarter of 2021, 46 hedge funds in the database of Insider Monkey held stakes worth $958 million in Barrick Gold Corporation (NYSE:GOLD), compared to 41 the preceding quarter worth $917 million.
Interest in inflation hedges like gold was already benefiting Barrick Gold Corporation (NYSE:GOLD), but the war in Ukraine has helped push prices higher as more people across the world buy gold to safeguard against the developing economic situation in the US and Europe due to disruption of Russian exports.
In its Q4 2020 investor letter, GoodHaven Capital Management, an asset management firm, highlighted a few stocks and Barrick Gold Corporation (NYSE:GOLD) was one of them. Here is what the fund said:
“Barrick’s recent results have been consistent with our expectations. Barrick Gold Corporation (NYSE:GOLD) has begun inching up the dividend as planned, which should continue increasing absent them finding a large acquisition (they want more copper assets) or a materially lower price of gold. We’d also expect periodic special dividends during stronger gold price environments. At current gold prices we estimate normalized free cash flow at Barrick Gold Corporation (NYSE:GOLD) of over $1.60/share. The company is now about net-debt free. We see plenty of upside and absent a collapse in gold not too much downside. Missing from much of the public discussions about gold, but potentially interesting, is the supply/demand backdrop. As the Wall Street Journal (8/16/20) recently said “gold is amongst the rarest metals in the earth’s crust and much of the easier to get to ore has already been mined. What is left is harder to find and more expensive to extract…” According to the World Platinum Council, it was forecasted that there will be a supply and demand imbalance of 1.2 million ounces globally. The potential macro tailwinds that could add value to an alternate currency like gold including currency concerns, excessive debt and continuing negative real interest rates are still out there. While the shares performed well for the year they were weak in the second half and now stand more attractively priced.”
4. The Boeing Company (NYSE:BA)
Number of Hedge Fund Holders: 50
The Boeing Company (NYSE:BA) makes and sells military aircraft, satellites, and missile defense systems. The role that these systems play in modern military conflicts is crucial, as demonstrated by pleas made by Ukraine to the West for air and missile support against Russian aggression in urban centers. European nations near Ukraine are likely to buy more The Boeing Company (NYSE:BA) products amid the war to protect themselves.
Elite hedge funds are bullish on The Boeing Company (NYSE:BA). At the end of the fourth quarter of 2021, 50 hedge funds in the database of Insider Monkey held stakes worth $1.1 billion in The Boeing Company (NYSE:BA), the same as in the preceding quarter worth $1.4 billion.
In its Q1 2020 investor letter, Miller Value Partners, an asset management firm, highlighted a few stocks and The Boeing Company (NYSE:BA) was one of them. Here is what the fund said:
“We’ve known The Boeing Company (NYSE:BA) for a long time. It’s always been a high quality company that’s traded for a premium valuation owing to its position as a global duopoly. We’d looked at it recently after weakness due to its highly publicized Max 737 issues, but it never got cheap enough for us to pull the trigger. After the pandemic, the stock went into freefall as its customer bases’ business dried up and people worried about its liquidity. The stock fell from $338 on February 19th when the S&P hit its high to a low of $89. We bought the stock after the new CEO Dave Calhoun said publicly that it would not take government capital if it required equity dilution because it had many other options. Our average price is just above $120 where it was trading for less than 7x what it earned in 2018. It will likely take a while to normalize to those earnings levels, but this business will survive and ultimately we will own a leader in a global duopoly. Even on depressed forecasts, the company currently has about a 10-15% free cash flow yield. If and when the economy normalizes, we think The Boeing Company (NYSE:BA) could be worth more than double its current price.”
3. Raytheon Technologies Corporation (NYSE:RTX)
Number of Hedge Fund Holders: 50
Raytheon Technologies Corporation (NYSE:RTX) is an aerospace and defense firm. The stock has climbed more than 9% since the Russian invasion of Ukraine. Despite supply chain pressures, the company is likely to ride the boom in defense spending over the next few months as countries ramp up their military budgets to protect against Russian threats, especially in parts of Europe close to Ukraine that are US allies.
Hedge funds have been loading up on Raytheon Technologies Corporation (NYSE:RTX) stock as well. At the end of the fourth quarter of 2021, 50 hedge funds in the database of Insider Monkey held stakes worth $2.3 billion in Raytheon Technologies Corporation (NYSE:RTX), compared to 48 in the preceding quarter worth $2.2 billion.
In its Q4 2020 investor letter, Davis Funds, an asset management firm, highlighted a few stocks and Raytheon Technologies Corporation (NYSE:RTX) was one of them. Here is what the fund said:
“In today’s uncertain economy, we believe we have found such businesses trading at bargain prices in two sectors: industrials and financials. In the industrial space, concerns about the impact of the economic downturn on short-term profitability led to a wave of selling in a select group of leaders with durable competitive advantages, long records of profitability and bright long-term prospects. Companies like Raytheon Technologies is a wonderful example of attractive investments in this sector.”
2. Devon Energy Corporation (NYSE:DVN)
Number of Hedge Fund Holders: 51
Devon Energy Corporation (NYSE:DVN) is an independent energy company. At the end of the fourth quarter of 2021, 51 hedge funds in the database of Insider Monkey held stakes worth $1.7 billion in Devon Energy Corporation (NYSE:DVN), compared to 48 in the previous quarter worth $1.4 billion.
Energy prices have soared since the Russian invasion of Ukraine since Russia is one of the top energy exporters to Europe. Companies like Devon Energy Corporation (NYSE:DVN), already on a high amid rising inflation, are likely to ride this boom as alternative energy supplies are sought by Europe after sanctions on Russian exports.
In its Q4 2020 investor letter, GoodHaven Capital Management, an asset management firm, highlighted a few stocks and Devon Energy Corporation (NYSE:DVN) was one of them. Here is what the fund said:
“After a rough start to the year our two biggest energy holdings – WPX Energy rebounded materially in the last six months though energy was still our biggest detractor for the year. I’ve previously written about deciding earlier this year to direct new capital towards better businesses versus adding more to the energy sector, but given the material optionality at WPX, we opted to maintain a material exposure. Recently WPX announced an all stock merger with a larger competitor – Devon Energy Corporation (NYSE:DVN) – which will leave the new company with plenty of cash flow at lower oil prices, less leverage, and material upside to higher commodity prices.”
1. Exxon Mobil Corporation (NYSE:XOM)
Number of Hedge Fund Holders: 71
Exxon Mobil Corporation (NYSE:XOM) is an integrated oil and gas firm. Hedge funds have been piling into the stock. At the end of the fourth quarter of 2021, 71 hedge funds in the database of Insider Monkey held stakes worth $5.3 billion in Exxon Mobil Corporation (NYSE:XOM), compared to 64 in the previous quarter worth $4.6 billion.
Exxon Mobil Corporation (NYSE:XOM) stock has benefited from reports that the Biden administration is considering widespread sanctions against Russian oil imports, lifting crude prices to new highs. However, a new deal with Iran might offset some of these pressures as Iranian oil is pumped into the market.
In its Q1 2021 investor letter, Harding Loevner highlighted a few stocks and Exxon Mobil Corporation (NYSE:XOM) was one of them. Here is what the fund said:
“We felt that our remaining energy holding, Exxon Mobil Corporation (NYSE: XOM), with its stronger balance sheet, was in a better position to ride out the cyclical slump in oil demand and even perhaps take advantage of it by investing counter-cyclically. While Exxon Mobil Corporation (NYSE: XOM) does plan to increase capital expenditure, we’ve been disappointed in its regrettable failure to address ongoing emission trends, which reflects poorly on management’s foresight. As a result, we sold our Exxon Mobil Corporation (NYSE: XOM) holdings.”
Follow Insider Monkey on Twitter
Suggested Articles:
- 10 Semiconductor Stocks To Watch Amid Russia-Ukraine War
- Why These 10 Stocks Are Moving on Friday
- 10 Dividend Stocks with Over 10% Yield
Disclosure. None. 10 War Stocks to Buy Now According to Hedge Funds is originally published on Insider Monkey.
