US-Iran Tension Soars After Airstrike, Defense Stocks Jump

U.S. defense stocks started 2020 on a strong note, following escalated cross-border tensions between the United States and Iran over the weekend. The situation between these two nations, which have been at loggerheads for long, worsened after an early-hour U.S. airstrike at Baghdad airport killed Iran’s top general Qasem Soleimani on Jan 3.

The latest strike has raised risk of military escalation between the United States and Iran, thanks to President Trump’s repeated remarks of threatening to hit Tehran, if needed. On the other hand, Iran has vowed to take “severe revenge”.

Will Iran Retaliate?

General Soleimani’s death has significantly increased the possibility of a war between the United States and its adversaries in the Middle East, particularly Iran and Iraq. The nuclear deal negotiated by the international community with Iran, after years of hurdles, is the first victim of the crisis. Iran’s government announced on Jan 5 that the country will no longer observe limitations on uranium enrichment, stockpiles of enriched uranium or nuclear research and development.

The Iranian government has been harboring a lot of anguish against America, following the latter’s repetitive attempts to establish its influence on Iran’s economy through the nuclear deal signing along with last June’s sanction that prevented Iran’s top military officials from accessing U.S. financial instruments.

The killing of Soleimani seems to have served as the last nail in the coffin. Ayatollah Khamenei, another Iranian leader, has vowed that the nation will now take a direct military action against the United States. Adding to the woes of the geo-political situation in the Middle East, Iraq is also ready to make a move, having lost one of its commanders in the same airstrike.

In retaliation, Iraq’s parliament has voted to expel U.S. troops, which may consolidate Iran’s influence in Baghdad.

It is evident from the above discussion that the cross-border situation between the United States and the Middle East is quite delicate right now and the possibility of Iran and Iraq militants separately attacking U.S. troops, if not jointly, is high.

Defense Stocks Gain

Per a BBC report, in response to Iran’s threat of revenge, America has sent 3,000 more troops to the Middle East and advised its citizens to leave Iraq. This indicates the chances of a conflict, which could prove to be beneficial for U.S. defense stocks.

Herein we have mentioned a few defense majors, which witnessed an uptick following the U.S. airstrike at Baghdad airport and also outperformed the broader market. These stocks carry a Zacks Rank #2 (Buy) or Rank #3 (Hold) and have strong fundamentals and thus should find place in an investor’s watchlist. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Lockheed Martin LMT: This Zacks Rank #3 stock gained 3.6% following the U.S. airstrike at Baghdad airport while the S&P 500 slipped 0.7%. The company surpassed the Zacks Consensus Estimate in four consecutive quarters, delivering average surprise of 14.41%. Its long-term earnings growth rate is 7.1%.

Northrop Grumman NOC: This Zacks Rank #2 stock gained 5.4% following the U.S. airstrike. The company surpassed the Zacks Consensus Estimate in four consecutive quarters, coming up with an average surprise of 11.48%. Its long-term earnings growth rate stands at 13.1%.

Raytheon Company RTN: This Zacks Rank #2 stock gained 1.5% following the U.S. airstrike. The company surpassed the Zacks Consensus Estimate in four consecutive quarters, with an average surprise of 8.6%. Its long-term earnings growth rate is 10.7%.

General Dynamics GD: This Zacks Rank #3 stock gained 1% following the U.S. airstrike. The company surpassed the Zacks Consensus Estimate in four consecutive quarters, with an average surprise of 4.14%. Its long-term earnings growth rate is 8.6%.

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Click to get this free report Northrop Grumman Corporation (NOC) : Free Stock Analysis Report Lockheed Martin Corporation (LMT) : Free Stock Analysis Report General Dynamics Corporation (GD) : Free Stock Analysis Report Raytheon Company (RTN) : Free Stock Analysis Report To read this article on Zacks.com click here. Zacks Investment Research