In this article, we discuss 10 war stocks to buy now according to hedge funds. If you want to skip our detailed analysis of these stocks, go directly to 5 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.”
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Disclosure. None. 10 War Stocks to Buy Now According to Hedge Funds is originally published on Insider Monkey.
