In this article, we discuss 10 American stocks that will benefit from the new Cold War. If you want to see more stocks in this selection, check out 5 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.”
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Disclosure: None. 10 American Stocks That Will Benefit from the New Cold War is originally published on Insider Monkey.
