Right now, the world is precariously balanced between peace and WWIII.
Iran has over 137 billion barrels of proven oil reserves (Source: CIA World Fact Book). And this is the good stuff - not the Canadian sludge that requires exhaustive processes to obtain and refine. This makes Iran a bigger 'prize' than Iraq or Kuwait.
Unlike our 'friends' in Saudi Arabia and Kuwait (does this now include Iraq?) Iran is abrasively non-compliant, if not antagonistic, toward American needs. It won't play our petro-dollar games and runs a decisively anti-American foreign policy. Then again, how different is Iran from France?
While France and Iran are both sovereign nations and perfectly entitled to protect domestic interests, within the realm of international law, the latter has something America desperately needs. America's confrontation with modern Iran has been brewing for decades, but the Anglo-American quest for control over Middle East oil assets is nothing new. This history is filled with manipulation and deceit.
Call me a cynic, but I haven't entirely bought the idea that Iran is an evil menace to the world, as western media portrays. Once bitten, twice shy - I have not forgotten the cornucopia of rhetoric and lies during the 18 months between 9/11 and Operation Iraqi Freedom.
I haven't swallowed the Iran Kool-Aid, but that doesn't mean I'm not worried. If Iran is as bad as they say, I certainly don't want it to build the bomb. Regardless of what I think is right or wrong, real or fabricated, the war drums are getting louder.
There are so many ways this could turn out. The most devastating outcome would be the unraveling of pent-up economic and military tension between America, Russia, and China, using Iran as a conduit. At the other extreme, notwithstanding some immaterial physical or verbal skirmishes, adversaries could quietly retreat in a hazy mutual understanding.
I am but a simple investor who lives in a world of probabilities. I can shout from my soapbox, but I have little influence over the fate of the world. I don't condone war, but does that make it wrong to profit from an uncontrollable outcome? Viewed differently, if war is an uncontrollable risk perhaps investing in war companies (aka defense companies) is a way to hedge that risk. I don't condone endless bailouts and money printing either, but that doesn't stop me from hedging the risk of monetary expansion.
War can be a profitable venture indeed. As shown in the chart below, the PHLX Defense Sector Index outperformed the S&P 500 (NYSEARCA:SPY) by a wide margin since the onset of Operation Iraqi Freedom in March 2003:
Source: planBeconomics.com, Yahoo! Finance
If investors decide they wish to hedge war risk, there are eight companies and two ETFs that may be worth researching (of course, nothing is guaranteed to work). Below I've provided some data on valuations, dividends, financial leverage and profitability to help start the research process. If you're inclined to do the fundamental research you may find some gems, but I'd rather just pick an ETF because I'm more interested in the sector exposure than uncovering the idiosyncratic nuances of each company. Good luck.
Company / ETF
Alliant Techsystems Inc.
General Dynamics Corp.
L-3 Communications Holdings Inc.
Lockheed Martin Corporation
Northrop Grumman Corporation
United Technologies Corp.
PowerShares Aerospace & Defense Portfolio
iShares Dow Jones US Aerospace & Defense Fund
Valuation (excludes the ETFs):
Leverage (excludes ETFs):
Profitability (excludes ETFs):
Return on Equity
Data Source: Finviz, Yahoo! Finance.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Disclaimer: This is not advice. While Plan B Economics makes every effort to provide high quality information, the information is not guaranteed to be accurate and should not be relied on. Investing involves risk and you could lose all your money. Consult a professional advisor before making any investing decisions.