There are two ways to interpret global events happening right now, from a weakening state in consumer discretionary trends to the geopolitical conflicts taking place in the Middle East. The first and most common is to read about them in the news and never think of them again. The second is the way every investor should go about this sort of news (the ones that tend to drive markets the most).
Figuring out the implications for not only the S&P 500 but also specific industries and stocks can deliver outsized returns as long as investors understand the true depth of the situation at hand. With these conflicts and deteriorating consumer environments in the United States, there are three stocks that investors must keep in their portfolios to cushion any near-term volatility.
In the consumer financing space, Visa Inc. (NYSE: V) offers investors some stability and potential upside even as credit card delinquencies are now on the rise. Then, as port strikers suspend a significant portion of the United States trade activity, routes going through Africa might benefit Tidewater Inc. (NYSE: TDW) with pricing power, but then these routes need to be protected, particularly during these Middle East conflicts; which is where Lockheed Martin Co. (NYSE: LMT) comes into play.
Visa Stock: A Flight to Safety Amidst the Consumer Storm
There has to be a strong reason for bearish traders to stay away from Visa stock, a trend investors can gauge through the company's declining short interest in the past quarter, with 3.5% contractions in the past month alone.
It may not come as a surprise that Visa stock now offers investors double-digit upside, especially considering it has recently traded down by 10% in the past month to give Wall Street analysts the opening they need to shine through their ratings. And shine they did, led by those at Morgan Stanley.
These analysts now see Visa commanding a price target of up to $322 a share, implying it needs to rally by as much as 16.3% from where it trades today. As Visa is a $501 billion behemoth, a double-digit upside means twice as much, given that large-cap stocks don't usually move by that much.
Driving these views are the current earnings per share (EPS) growth forecasts from Wall Street. They expect to see $3.00 in EPS by the end of next year, which is 24% above today's $2.42 net reported earnings. This growth may come from Visa's higher credit quality and scalability over some of its competitors in the consumer finance space.
This could be why Warren Buffett kept Visa in his portfolio while also selling Capital One Financial Co. (NYSE: COF) at the same time. Capital One is a tenth of Visa's size, and its customer credit score profile is not nearly as high as Visa's, which makes Visa an advantageous must-have stock during a shifting consumer tide.
Tidewater Takes Control: Leading the Charge in Freight Pricing Rates
The Middle East conflicts could severely disrupt the energy sector, slowing down or even blocking trade routes in products like oil and consumer goods. This is not something the United States can afford right now, as it is just getting over its victory lap after lowering inflation.
So, Tidewater and its critical African and Middle East routes will become as important as ever, and this importance may give the company some additional pricing power to squeeze short-term profits. This could be why analysts are upgrading the stock, calling for profound double-digit upside potential.
Those at Raymond James led the latest wave of boosts as of August 2024, when these conflicts were just getting started. Their latest view calls for a price target of $138 a share along with a Strong Buy rating.
The stock would need to rally by as much as 92.3% from where it trades today to prove these targets right.
Even bearish traders figured it wouldn’t be worth betting against Tidewater stock, which is why the company’s short interest collapsed by 15.9% in the past month, following a massive decline of $300 million over the quarter as well.
Lockheed Martin Stock: A Key Player Amid Rising Global Conflicts
Now that these conflicts are on the rise and the trade routes are threatened, there is one stock that investors should consider in these situations. Arms and defense stocks tend to do well in these environments, so it shouldn’t surprise to see Lockheed Martin stock trade at 95% of its 52-week high today.
While buying near the highs may seem a little risky, investors have a few reasons to keep this name in their portfolios for the coming months. There are those on Wall Street who would also agree with taking on this view of Lockheed Martin.
Analysts at Bank of America reiterated a Buy rating on Lockheed Martin stock at the end of August 2024, this time with a $635 price target. The stock must rally by an additional 5.3% from today’s price to prove these analysts right.
While this may not seem like that much upside, it is enough to get some institutional buyers back in the game. Ameriprise Financial and Legal & General Group decided to boost their holdings by a respective 1.7% and 14.9%, bringing their positions to $902.7 and $646.8 million each.
