For investors, the Iran war brings some predictable and some surprising consequences. In the predictable camp, there are traditional oil and energy stocks. As crude prices rise due to the conflict, energy is the most efficient sector S&P 500 this year, and the competition isn’t even close.
Among the wonders there is gold and buyer staples stocksboth of which betray their reputation as war havens in the Middle East. Add RTX (NYSE: RTX) and other defensive stocks in the surprise lineup. Over the past month, the missile maker’s shares have fallen about 5.7%.
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Believe it or not, that’s slightly worse than the nearly 8% decline experienced by Dow Jones US Select Aerospace & Defense Index at the same time. Even with this drop, RTX is not in a fix, and is nowhere close to entering a bear market. That is a relief and perhaps an indication that opportunity is just around the corner industrial stock.
Understandably, some investors are scratching their heads over the war-related gains in oil stocks and the lack of such gains for RTX and its rivals. It’s disappointing for market participants who expected the armed conflict to boost defense stocks, but it’s not entirely surprising, because financial markets tend to look ahead rather than get caught up in the moment.
On that note, RTX and friends could benefit from the general theme of rising defense spending, which the Iran war would create. RTX investors can see that wish granted because the US uses a large number of explosives in Iran, and most of them are produced by this company.
In a report published on April 2, Melius Research estimated that Uncle Sam would need to spend six billion dollars to restock RTX-made ammunition and weapons, including the array of missiles, used in Operation Epic Fury, just to return to pre-conflict levels. With that report almost a week old and the war going on, it is possible that an estimate of $ 6 billion needs to be combined.
Which could be the reason for this defensive stock that, when the war ends, the federal government will take the opportunity to replenish the military to levels not seen before the conflict. That is not a stretch, given that resistance to defense spending in this country is high. Specified in RTX, it makes critical missiles and related gears that need to be replaced. The government cannot cut corners there.
While investors await official announcements of new defense officials, they have reason to put the stock on their radars in the short term. RTX reports first quarter results before the market opens on Tuesday, April 21. Earnings announcements are always important, but the next one from RTX may be a crowd pleaser because the stock is open. Morgan StanleyThe list of 10 names reported this month can bring surprises.
Market participants taking a long view of RTX can take comfort in knowing that each of the three main companies is considered width moat, which ensures lasting competitive advantages. Additionally, a large-scale buyback is unlikely, indicating that RTX is prioritizing strengthening its balance sheet, which could pave the way for its dividend to extend beyond its current six-year high.
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Todd Shriber has no position in any of the listed stocks. The Motley Fool ranks and recommends RTX. The Motley Fool has a policy of disclosure.
RTX Surpasses All. Is It Still the Smartest Purchase Right Now? was first published by The Motley Fool
