Nuclear Fallout: Winning and Losing Stocks from Trump’s Iran Deal Exit

President Trump pulled the United States out of the “horrible, one-sided” Iran nuclear pact yesterday, a move that was met with widespread consternation and condemnation in Europe, where German, British, and French leaders have vowed to remain committed to the deal with or without the U.S. And for good reason; should the deal fall through completely, Iran has vowed to begin enriching uranium again within weeks of such a development, though Iran has also stated that it will remain in the nuclear deal without the U.S.

Trump’s decision to exit the landmark deal and impose sweeping sanctions on Iran and anyone doing business in the country has rippled across the stock market, positively and negatively affecting a number of sectors and individual companies. We’ll look at a few of the biggest winners and losers of the deal below.

Winners: Defense Stocks

Defense stocks like Lockheed Martin Corporation (NYSE:LMT) and Northrop Grumman Corporation (NYSE:NOC) are some of the prime beneficiaries of the heightened military tension and outright conflict that is likely to result from Trump’s move, with missile strikes reportedly being launched by Yemen rebels as well as Israel within hours of the U.S exiting the nuclear pact.

The development should help defense stocks rebound from a sharp and somewhat inexplicable correction that took place in late-April, despite strong earnings beats and outlooks from Lockheed Martin Corporation (NYSE:LMT), Northrop Grumman Corporation (NYSE:NOC), and General Dynamics Corporation (NYSE:GD).

Loser: Boeing Co (NYSE:BA)

Boeing Co (NYSE:BA) took a $20 billion hit to the chin from the Iran deal exit, as Treasury Secretary Steven Mnuchin announced that the aerospace giant’s license to sell $20 billion worth of jets to Iran had been revoked. Boeing signed a deal to supply 80 aircraft to Iran Air in December 2016 through the Joint Comprehensive Plan of Action, in addition to having a contract to supply 30 aircraft to Aseman Airlines. Boeing had not yet committed production slots for the Iran-bound jets according to CEO Dennis Muilenburg, so its 737 production will be unaffected by the lost contract. The same can’t be said about its future revenue however.

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On the next page we’ll look at several other winners and losers that will result from the Iran deal fallout.

Winners: Oil Stocks

One of the most obvious winners from the U.S placing heavy sanctions on Iran, the world’s fifth-largest oil producer, are oil companies, which will benefit greatly from the higher prices that will result from further pressure being placed on already tight oil supplies. It’s estimated that as much as 1 million barrels per day of Iranian oil supply could go offline due to the sanctions.

Several major oil companies were already coming off their best quarters in years in the first-quarter, even with oil in the $50 to $60 range, thanks to several quarters of belt tightening necessitated by oil’s dramatic fall in late-2014/early-2015. Needless to say, those results will only improve further now that WTI has pushed past the $71 mark. With stronger balance sheets, oil companies will be in a good position to return more of their growing profits to shareholders than they would’ve been a year or two ago.

Loser: Total SA (ADR) (NYSE:TOT)

Total SA (ADR) (NYSE:TOT), which signed a $5 billion deal with Iran last year to develop the South Pars offshore field alongside China National Petroleum Corporation (CNPC), is now in danger of losing that project. The CEO of the France-based multinational company has reportedly petitioned French officials to help it secure a waiver from the Trump administration to continue working on the project, in which it has already invested $90 million. Should that fail, Total SA could attempt to salvage some of its investment by transferring its 50.1% stake in the project to CNPC, though even that would be small consolation to losing its projected $3.5 billion in profits over the life of the deal. It’s possible that China National Petroleum will also pull out of Iran, which would complicate matters for Total even further.

Losers: Travel Stocks

As we noted earlier today, rising oil prices will hurt the profitability of cruise stocks, and that’s the case for other sectors of the travel industry as well, including airlines. Airlines were already feeling the heat from brent crude’s rise earlier this year, with American Airlines Group Inc (NASDAQ:AAL) cutting its EPS guidance in late-April. Shares of the company were already down by over 10% in 2018 as of mid-April and those losses have since deepened to over 20%.

For American Airlines Group Inc (NASDAQ:AAL) and United Continental Holdings Inc (NYSE:UAL), the situation is made even more perilous due to both companies having recently stopped hedging against rising oil prices. With fierce competition already exerting pricing pressure on the industry, the timing is not at all good for a further assault on already-thin margins.

Disclosure: None