The Russia-Ukraine crisis has resulted in high volatility in global financial markets — from commodities and traditional stores of value to tech and ‘growth’ sectors. It could be reshaping short-term investment trends. In this article, Jesse Cohen, senior financial analyst at Investing.com, explores some of the most resilient sectors presently available to investors, for Opto.
Russia’s recent invasion of Ukraine is a geopolitical shock that has caused a great deal of turmoil and pain, something that is unlikely to fade quickly. The tremors have hit global stock markets as well, with countless investors worrying or selling their investments at each new development. The market jitters emanating from this geopolitical crisis come during an already volatile period, where markets had already corrected from all-time highs amid rising inflation, impending rate hikes, pandemic-related business shifts and lower-than-expected earnings results from industrial giants.
The Russia-Ukraine crisis may force investors to re-evaluate their positioning, especially in light of the broader market backdrop. That can also present an opportunity for investors to safeguard their portfolio by increasing holdings in sectors and assets that can both act as hedges against short-term volatility and offer exposure to growth in the short and long-term future. Here are a few areas of the market to consider.
From a markets perspective, arguably the most in-focus sector from the Russia-Ukraine crisis is the defence sector. The escalation of a geopolitical conflict would presumably boost the relevance of Lockheed Martin [LMT], Raytheon [RTX], Northrop Grumman [NOC] and other leading defence companies.
Raytheon is the world’s largest producer of guided missiles as well as a leading manufacturer of missile defence systems. Its portfolio includes radar networks and ballistic missile interceptors. It also makes a wide range of air-to-surface, surface-to-air, air-to-air and surface-to-surface precision-guided missiles. All of this positions Raytheon as a strong option for investors who are looking to hedge against further geopolitical uncertainty in the weeks ahead. Regarding Raytheon’s longer-term appeal, Investing.com’s InvestingPro model projects that the stock’s value could rise approximately 17% in the next 12 months.
Lockheed Martin is best known as the lead developer and manufacturer of a wide range of military aircraft, including the F-16, F-22 and F-35 fighter jets, of which the US military and its NATO allies are the primary buyers. Lockheed shares should rise in the upcoming weeks, considering the defence contractor’s status as a manufacturing leader of an assortment of military goods and advanced technologies — which, in addition to fighter jets, includes combat ships, hypersonic missiles and missile defence systems. During the next 12 months, Lockheed shares are expected to gain roughly 32%, according to InvestingPro.
Northrop Grumman holds the largest share of the global drone market. It produces the $120m RQ-4 Global Hawk — which is widely used by the US Air Force and NATO member states — and also designs and manufactures the RQ-180 stealth drone that can evade radar. The InvestingPro model, acknowledging that Northrop shares are currently undervalued, anticipates a 26.5% increase in the stock’s value over the next 12 months.
In 2021, gold underperformed and bitcoin soared even with elevated inflation, leading some to question gold’s legacy status as a safe haven and whether bitcoin could replace it. The trading of the past week has answered those questions. The values of the dollar and gold are both surging, indicating that investors are increasingly preferring safer investments over higher-risk assets as geopolitical tensions swirl. Investors are particularly bullish on gold, which earlier this week exceeded $1,950 for the first time in 13 months. As the Russia-Ukraine crisis portends more uncertainty for the markets in the coming weeks and even months, this could become a resurgent trend for the yellow metal.
Large cap technology stocks
Investors whose portfolios focus heavily on technology stocks have already experienced an exceedingly difficult three months. On the surface, with the Russian invasion creating greater instability, the tech stock selloff seems bound to persist and expand.
That said, investors should think twice before selling their large cap tech stocks. Historically, such stocks have proven their ability to weather the storm of virtually any military conflict or comparable episode that spurs market upheaval, while also providing high dividend yield.
One example is Microsoft [MSFT], which projects stability due to the resilience of its business. The computing giant’s specialties of office productivity software, operating systems and server applications mean that the company can raise prices without losing a significant number of customers. Not surprisingly, then, Microsoft’s total returns of 335% during the past five years were over double the returns that were delivered by the Nasdaq exchange.
Apple’s [AAPL] combination of rising dividends, share buybacks and encouraging earnings serves to strengthen investors’ total return even in times of distress. Amid the tech stock selloff, Apple stock is down about 12% this year, a less significant drop than the 18% decline in the tech-focused Nasdaq.
The chip manufacturer Broadcom [AVGO], meanwhile, in December 2021 upped its quarterly dividend by 14% and introduced a $10bn share buyback plan. Bank of America’s most recent analysis on Broadcom states that the stock offers “high-quality growth at a compelling valuation”.
Ultimately, by rebalancing their portfolio to align with these safer bets during tumultuous times, investors can potentially avoid a crisis for their bottom line as the crisis rages in Ukraine.
Jesse Cohen is a senior financial analyst at Investing.com, where he provides in-depth analysis and insights on the US stock market, with a focus on high-growth technology stocks.
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