In this article, we discuss 10 American stocks that will benefit from the new Cold War.
A March 2022 survey indicated that more than 6 in 10 American adults believe that the chance of a Cold War is now greater than it was five years ago. However, President Biden announced in a United Nations meeting on September 21 that “we do not seek a Cold War” and that the US was not asking “any nation to choose between the United States or any other partner.” However, foreign policy experts largely believe that with the US on one side and Russia and China as its opponents, a Cold War is already happening.
The United States’ lead in productivity, technology, and average company size means its economy is still stronger than China’s, which is the largest manufacturing and exporting entity in the world, but the gap between the two superpowers is far less than was the case between the US and the U.S.S.R. in the old Cold War. If sanctions or trade wars become obvious between the United States and China, there are many American stocks that stand to benefit from this scenario. Some of the companies that will be clear winners amid the new Cold War include Fortinet, Inc. (NASDAQ:FTNT), Freeport-McMoRan Inc. (NYSE:FCX), and Caterpillar Inc. (NYSE:CAT).
Our Methodology
We selected American companies operating in the cybersecurity, defense and military, lithium, and precious metals sectors. During geopolitical unrest, cyber safety and military firms experience higher demand. Similarly, China is the largest lithium and precious metals exporter, and a war means the United States and its allies might cut reliance on the country, which will boost domestic firms working in the sector.
The hedge fund sentiment around the securities was assessed from Insider Monkey’s Q2 2022 database of about 900 elite hedge funds.
American Stocks That Will Benefit from the New Cold War
10. Qualys, Inc. (NASDAQ:QLYS)
Number of Hedge Fund Holders: 23
Qualys, Inc. (NASDAQ:QLYS) was incorporated in 1999 and is headquartered in Foster City, California. It is a cloud-based provider of information technology, security, and compliance solutions in the United States and internationally. Qualys, Inc. (NASDAQ:QLYS)’s product suites enable customers to identify and manage IT assets, collect and analyze IT security data, discover and prioritize vulnerabilities, and verify the implementation of such actions. As cyber threats increase in the midst of the new Cold War, demand for firms like Qualys, Inc. (NASDAQ:QLYS) skyrockets.
On August 9, Wedbush analyst Daniel Ives maintained an Outperform rating on Qualys, Inc. (NASDAQ:QLYS) but lowered the price target on the shares to $150 from $160. The analyst noted the company delivered robust Q2 results that came in ahead of the Street’s expectations as Qualys, Inc. (NASDAQ:QLYS) continues to show deal momentum in the field.
According to Insider Monkey’s data, 23 hedge funds were bullish on Qualys, Inc. (NASDAQ:QLYS) at the end of Q2 2022, with collective stakes worth $300 million, compared to 23 funds in the prior quarter worth $328 million. Terry Smith’s Fundsmith LLP is the leading position holder in the company, with 930,206 shares valued at $117.3 million.
Like Fortinet, Inc. (NASDAQ:FTNT), Freeport-McMoRan Inc. (NYSE:FCX), and Caterpillar Inc. (NYSE:CAT), Qualys, Inc. (NASDAQ:QLYS) is one of the American stocks that will benefit from the new Cold War.
Here is what Headwaters Capital specifically said about Qualys, Inc. (NASDAQ:QLYS) in its Q2 2022 investor letter:
“Qualys, Inc. (NASDAQ:QLYS) was founded in 1999 and provides vulnerability management software to both SMBs and enterprise customers. Vulnerability management software provides a continuous view of security and compliance across all of a company’s assets including on-premise, end-points, cloud and mobile. The easiest way to think about QLYS’s original VM solution is that it provided a dashboard that monitored all potential threats to a network and helped IT departments prioritize which vulnerabilities were the highest risk. QLYS was a pioneer in the industry as they were one of the first companies to offer a cloud-based software as a service (SaaS) solution as opposed to the traditional license offerings that proliferated at the time. While QLYS’ VM software has always provided an industry leading dashboard to monitor weaknesses, it provided limited functionality to respond to these vulnerabilities. More recently, QLYS has increased the functionality of its software through the rollout of Detection and Response capabilities (VMDR) and extended detection and response (XDR) capabilities in late 2021.
The cybersecurity space has been marked by a preference of customers for point solution expertise as opposed to a winner take all solution. This market structure is driven by the complex nature of assets that need protection, the dynamic nature of security threats and the critical nature of cybersecurity, which leads to a customer preference for quality over cost. Historically, cybersecurity was best served by firewalls, which provided a ring fence around assets that were physically located on a network. Firewalls are increasingly becoming obsolete in the cybersecurity world as the network perimeter has effectively disappeared due to the growing adoption of SaaS solutions and new connected devices that connect to the network from multiple new endpoints. This trend has only accelerated following COVID. As more devices and software tools connect from outside of the traditional firewall perimeter, the importance of security monitoring tools such as VM, VMDR and XDR has increased. In many ways, vulnerability management is the foundation of cybersecurity as it provides the dashboard for monitoring all potential security gaps. QLYS’ software can provide critical data about which assets are exposed to specific threats and can increasingly help IT departments prioritize and remediate these vulnerabilities.
Understanding QLYS’s history is important to gaining confidence in QLYS’ ability to maintain revenue growth going forward. QLYS was almost perfectly positioned earlier this decade to take advantage of both the transition in the software market from license to SaaS solutions as well as the cybersecurity trend away from firewalls as devices increasingly moved beyond a physical perimeter. Given the large TAM, industry tailwinds and a market leading product, QLYS was able to growth revenues at a +20% CAGR from 2012-2018. Even more impressive, QLYS was able to accomplish this growth with limited investment in R&D or its sales force. R&D as a percentage of revenues declined from 22% in 2012 to 16% in 2018 while S&M declined from 40% in 2012 to 22% in 2018. Consequently, QLYS operates with one of the highest EBITDA margins in the industry at 45%. The ability for QLYS to post such consistent revenue growth despite under-investing in product development and sales is evidence of the strong competitive positioning of QLYS’ software and the critical nature of the product…” (Click here to read more)
9. Leidos Holdings, Inc. (NYSE:LDOS)
Number of Hedge Fund Holders: 29
Leidos Holdings, Inc. (NYSE:LDOS) is headquartered in Reston, Virginia, providing services and solutions in the defense, intelligence, civil, and health markets in the United States and internationally. The Defense Solutions segment offers national security systems for air, land, sea, space, and cyberspace for the U.S. Intelligence Community, the Department of Defense, the National Aeronautics and Space Administration, and government agencies of U.S. allies abroad. Cybersecurity and defense stocks thrive in times of geopolitical turmoil, which is a positive catalyst for Leidos Holdings, Inc. (NYSE:LDOS).
RBC Capital analyst Ken Herbert on August 29 initiated coverage of Leidos Holdings, Inc. (NYSE:LDOS) with a Sector Perform rating and a $106 price target. As the leading government service firm, Leidos Holdings, Inc. (NYSE:LDOS) is positioned to benefit from increasing opportunities and margin stability as programs mature, the analyst told investors. However, he believes investors are holding out for improved clarity on the defense product and the company’s acquisition strategy.
Among the hedge funds tracked by Insider Monkey, 29 funds were bullish on Leidos Holdings, Inc. (NYSE:LDOS) at the end of June 2022, up from 19 funds in the prior quarter. James Parsons’ Junto Capital Management is the largest stakeholder of the company, with 858,976 shares worth $86.5 million.
8. Livent Corporation (NYSE:LTHM)
Number of Hedge Fund Holders: 30
Livent Corporation (NYSE:LTHM) is a Pennsylvania-based company that manufactures performance lithium compounds used in lithium-based batteries, specialty polymers, and chemical synthesis applications in North America, Latin America, Europe, the Middle East, Africa, and the Asia Pacific. The company also plans to spend around a billion dollars between 2022 and 2024 on growth capex. Livent Corporation (NYSE:LTHM) is one of the American stocks that will benefit from the new Cold War.
On September 19, Piper Sandler analyst Charles Neivert assumed coverage of Livent Corporation (NYSE:LTHM) with an Overweight rating and a $42 price target. The analyst’s 2024 EBITDA estimate is “considerably above” Street consensus and reflects his conviction about a greater price trajectory for lithium. He believes the demand for lithium products used in electric vehicle battery production will outpace lithium supply for at least the next three to four years and perhaps even longer, which will lead to sustainable lithium pricing.
According to Insider Monkey’s data, 30 hedge funds were bullish on Livent Corporation (NYSE:LTHM) at the end of Q2 2022, compared to 25 funds in the earlier quarter. Robert Karr’s Joho Capital is a notable position holder in the company, with 3.94 million shares worth $89.4 million.
7. Booz Allen Hamilton Holding Corporation (NYSE:BAH)
Number of Hedge Fund Holders: 30
Booz Allen Hamilton Holding Corporation (NYSE:BAH) was founded in 1914 and is headquartered in McLean, Virginia. It provides management and technology consulting, analytics, engineering, digital solutions, and cybersecurity to governments, corporations, and not-for-profit organizations in the United States and internationally. Booz Allen Hamilton Holding Corporation (NYSE:BAH) is one of the American stocks that stand to benefit from the new Cold War.
In addition to posting market-beating Q2 results, Booz Allen Hamilton Holding Corporation (NYSE:BAH) reaffirmed its FY2023 outlook. The company expects revenue growth of 5% to 9%, versus consensus growth of 9.66%. Adjusted diluted EPS is projected to fall between $4.15 to $4.45, compared to a consensus of $4.36.
On September 13, Stifel analyst Bert Subin raised the price target on Booz Allen Hamilton Holding Corporation (NYSE:BAH) to $105 from $102 and reiterated a Buy rating on the shares, citing ongoing demand tailwinds and an easing labor market.
According to Insider Monkey’s Q2 data, 30 hedge funds were long Booz Allen Hamilton Holding Corporation (NYSE:BAH), with combined stakes worth over $352 million, compared to 29 funds in the prior quarter worth $319.5 million. Steve Cohen’s Point72 Asset Management is the leading position holder in the company, with 875,800 shares valued at $79 million.
6. Albemarle Corporation (NYSE:ALB)
Number of Hedge Fund Holders: 39
Albemarle Corporation (NYSE:ALB) is a North Carolina-based company that develops, manufactures, and markets engineered specialty chemicals worldwide. The company’s Lithium segment offers lithium compounds, including lithium carbonate, lithium hydroxide, lithium chloride, and lithium specialties. In light of the Cold War, dependence on Chinese lithium might be reduced, which will benefit domestic suppliers like Albemarle Corporation (NYSE:ALB).
On September 9, Citi analyst P.J. Juvekar raised the price target on Albemarle Corporation (NYSE:ALB) to $345 from $294 and kept a Buy rating on the shares. The analyst said that the lithium supply/demand balance is still tight, noting he hasn’t seen lower demand despite higher lithium prices in 2022. Albemarle Corporation (NYSE:ALB) has rapidly restructured contracts to more variable pricing and is positioned to benefit from rising prices compared to the last cycle in 2015-2018, the analyst told investors in a research note.
According to Insider Monkey’s data, 39 hedge funds were bullish on Albemarle Corporation (NYSE:ALB) at the end of Q2 2022, compared to 44 funds in the preceding quarter. Paul Marshall and Ian Wace’s Marshall Wace LLP is the leading position holder in the company, with 739,388 shares worth $154.5 million.
In addition to Fortinet, Inc. (NASDAQ:FTNT), Freeport-McMoRan Inc. (NYSE:FCX), and Caterpillar Inc. (NYSE:CAT), elite investors are piling into Albemarle Corporation (NYSE:ALB) amid the tense geopolitical environment.
In its Q1 2021 investor letter, Carillon Tower Advisers, an asset management firm, highlighted a few stocks and Albemarle Corporation (NYSE:ALB) was one of them. Here is what the fund said:
“Albemarle Corporation (NYSE:ALB) is a global specialty chemicals company with leading positions in lithium, bromine, and refining catalysts. The firm’s shares outperformed in the quarter, driven largely by the current robust demand environment for lithium used in the manufacturing of electric vehicle batteries. As the global push towards the reduction of carbon emissions continues to gain steam, Albemarle is well positioned to benefit from the accelerating adoption of electric vehicles.”
5. Fortinet, Inc. (NASDAQ:FTNT)
Number of Hedge Fund Holders: 43
Fortinet, Inc. (NASDAQ:FTNT) was incorporated in 2000 and is headquartered in Sunnyvale, California. The company provides broad, integrated, and automated cybersecurity solutions in the Americas, Europe, the Middle East, Africa, and the Asia Pacific. Cybersafety is a huge concern amid the new Cold War, which is a positive catalyst for American firms like Fortinet, Inc. (NASDAQ:FTNT).
On September 15, Jefferies analyst Joseph Gallo initiated coverage of Fortinet, Inc. (NASDAQ:FTNT) with a Buy rating and a $65 price target. The company “represents a rare blend” of growth and GAAP profitability as it continues to work in the fields of converged security and networking, the analyst told investors in a research note. The analyst noted that businesses will employ a hybrid environment for the foreseeable future and the cyber/networking market is “massive.”
According to Insider Monkey’s data, 43 hedge funds were long Fortinet, Inc. (NASDAQ:FTNT) at the end of Q2 2022, compared to 39 funds in the last quarter. Jim Simons’ Renaissance Technologies is the biggest position holder in the company, with 4.8 million shares worth $272.3 million.
Here is what ClearBridge SMID Cap Growth Strategy has to say about Fortinet, Inc. (NASDAQ:FTNT) in its Q3 2021 investor letter:
“Performance among our cohort of IT and Internet companies was mixed, with enterprise software makers thriving while more consumer-oriented stocks faced headwinds. Cyber security software maker Fortinet benefited from a heightened awareness of the need to protect against sophisticated attacks. We are attracted to the recurring revenue nature of these software companies that are increasingly delivering their products on a subscription basis through the cloud. Software business models also tend to avoid many of the inflationary issues facing companies with a physical product or service.”
4. Raytheon Technologies Corporation (NYSE:RTX)
Number of Hedge Fund Holders: 45
Raytheon Technologies Corporation (NYSE:RTX) is a Massachusetts-based aerospace and defense company, specializing in systems and services for commercial, military, and government customers worldwide. It operates through four segments – Collins Aerospace Systems, Pratt & Whitney, Raytheon Intelligence & Space, and Raytheon Missiles & Defense. China has advanced military tech, and in times of heightened geopolitical tensions, American stocks like Raytheon Technologies Corporation (NYSE:RTX) will potentially thrive.
RBC Capital analyst Ken Herbert on July 27 reiterated an Outperform rating on Raytheon Technologies Corporation (NYSE:RTX) but lowered the price target on the stock to $115 from $125 after its Q2 earnings beat. Resilience in the company’s commercial markets made up for the softness in the defense business, the analyst told investors. Raytheon Technologies Corporation (NYSE:RTX)’s 2022 guidance also indicated a significant recovery in the defense business in the second half, which is the primary source of investor concern, the analyst added.
According to Insider Monkey’s data, 45 hedge funds were long Raytheon Technologies Corporation (NYSE:RTX) at the conclusion of Q2 2022, compared to 51 funds in the last quarter. Ken Fisher’s Fisher Asset Management is the largest position holder in the company, with 8.4 million shares worth $808.3 million.
Here is what Carillon Eagle Growth & Income Fund has to say about Raytheon Technologies Corporation (NYSE:RTX) in its Q1 2022 investor letter:
“Raytheon (NYSE:RTX) outperformed along with other defense contractors on rising geopolitical concerns. Military sales account for more than half of revenue. Key franchise programs include the Patriot Missile and F-35 engine, which have provided visible support through most of the decade.”
3. Caterpillar Inc. (NYSE:CAT)
Number of Hedge Fund Holders: 45
Caterpillar Inc. (NYSE:CAT) is an American corporation that manufactures and markets construction and mining equipment, diesel and natural gas engines, and industrial gas turbines worldwide. Caterpillar Inc. (NYSE:CAT)’s defense products include diesel engines, automatic transmissions, Trojan combat engineering tank, Terrier combat engineering vehicles, tank transporters, armored personnel carriers, military trucks, and infantry fighting vehicles. American stocks like Caterpillar Inc. (NYSE:CAT) are attractive for investors amid times of war and strained geopolitical relations.
Tigress Financial analyst Ivan Feinseth on September 30 maintained a Buy recommendation on Caterpillar Inc. (NYSE:CAT) but lowered the price target on the shares to $266 from $282, citing a re-rating of valuation. His 12-month target still reflects a potential total return with dividends of more than 60% from present levels, noted the analyst, who sees Caterpillar Inc. (NYSE:CAT) as well-positioned to benefit from continuous capital equipment spending, supported primarily by higher growth in the energy and mining sectors.
Among the hedge funds tracked by Insider Monkey, 45 funds were long Caterpillar Inc. (NYSE:CAT) at the end of Q2 2022, compared to 54 funds in the preceding quarter. Michael Larson’s Bill & Melinda Gates Foundation Trust is a prominent stakeholder of the company, with 7.35 million shares worth $1.3 billion.
Here is what Diamond Hill Large Cap Concentrated Fund has to say about Caterpillar Inc. (NYSE:CAT) in its Q1 2022 investor letter:
“We also initiated a position in Caterpillar (NYSE:CAT), one of the world’s leading manufacturers of construction and mining equipment. It’s a company we know well, as we have owned it in our large cap portfolio for quite some time. Recent share price weakness provided an opportunity for us to add it to our large cap concentrated portfolio at an attractive discount to our estimate of intrinsic value. We believe Caterpillar stands to benefit from increased capital investment supported by a healthier/recovering end market environment, particularly in construction and mining.”
2. Freeport-McMoRan Inc. (NYSE:FCX)
Number of Hedge Fund Holders: 56
Freeport-McMoRan Inc. (NYSE:FCX) is an Arizona-based company engaged in the mining of mineral properties in North America, South America, and Indonesia. The company explores for copper, gold, molybdenum, silver, and other precious metals, as well as oil and gas. Cutting reliance on China for precious metals as a consequence of the new Cold War will potentially benefit American mining stocks like Freeport-McMoRan Inc. (NYSE:FCX).
On September 21, Freeport-McMoRan Inc. (NYSE:FCX) declared a quarterly dividend of $0.15 per share, in line with previous. The dividend is payable on November 1, to shareholders of record on October 14. The forward yield was 2.02%.
RBC Capital analyst Sam Crittenden on July 22 maintained a Sector Perform rating on Freeport-McMoRan Inc. (NYSE:FCX) and lowered the price target on the shares to $35 from $46. The company posted another solid operating quarter, though the analyst also sees ongoing volatility in copper prices amid concerns over a future slowdown in demand during a recession. Freeport-McMoRan Inc. (NYSE:FCX) shares could respond swiftly when sentiment improves, the analyst added.
According to Insider Monkey’s data, 56 hedge funds were bullish on Freeport-McMoRan Inc. (NYSE:FCX) at the end of Q2 2022, compared to 68 funds in the earlier quarter. Ken Fisher’s Fisher Asset Management featured as the leading position holder in the company, with 52 million shares worth $1.5 billion.
In its Q1 2022 investor letter, ClearBridge Investments, an asset management firm, highlighted a few stocks and Freeport-McMoRan Inc. (NYSE:FCX) was one of them. Here is what the fund said:
“Supply chains eased for some goods, but remained challenged for many commodities including energy, agriculture, and fertilizer due to war and general scarcity, and also in many consumer products as semiconductors remained in short supply. Copper and gold producer Freeport- McMoRan (NYSE:FCX) rose as copper prices remained strong due to supply shortages and growing use in renewable energy systems and electric vehicles.”
1. Palo Alto Networks, Inc. (NASDAQ:PANW)
Number of Hedge Fund Holders: 90
Palo Alto Networks, Inc. (NASDAQ:PANW) is a California-based company that provides cybersecurity solutions worldwide, marketing and selling its products and services through channel partners, as well as directly to enterprises, service providers, and entities operating in the education, energy, financial services, healthcare, internet and media, manufacturing, and telecommunications sectors. Palo Alto Networks, Inc. (NASDAQ:PANW) is one of the American stocks that stand to benefit from the new Cold War, as companies and government institutions rapidly shore up their cyber defenses.
On September 16, MKM Partners analyst Catharine Trebnick initiated coverage of Palo Alto Networks, Inc. (NASDAQ:PANW) with a Buy rating and a $250 price target as part of a broader research note on the Cyber Security Software Sector. Palo Alto Networks, Inc. (NASDAQ:PANW) is the analyst’s top pick given the firm’s 75% revenue from subscription services. She further cited the company’s land-and-expand strategy and noted that Palo Alto Networks, Inc. (NASDAQ:PANW)’s deals are getting larger, with longer term deals up from $28 million a few years ago to $75 million now.
Among the hedge funds tracked by Insider Monkey, David Blood and Al Gore’s Generation Investment Management is a prominent stakeholder of Palo Alto Networks, Inc. (NASDAQ:PANW), with 733,482 shares worth $362.3 million. Overall, 90 hedge funds were bullish on the stock at the end of June 2022, up from 87 funds a quarter ago.
In its Q1 2022 investor letter, ClearBridge Investments, an asset management firm, highlighted a few stocks and Palo Alto Networks, Inc. (NYSE:PANW) was one of them. Here is what the fund said:
“The portfolio also saw solid performance from cybersecurity names Palo Alto Networks, Inc. (NYSE:PANW) which is gaining prominence as the risk of global cyber attacks increases as part of the Russian offensive. On an individual stock basis, leading contributors to absolute returns in the first quarter included positions in Palo Alto Networks.”
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Disclosure: None. 10 American Stocks That Will Benefit from the New Cold War is originally published on Insider Monkey.
