3 Ways to Profit From the Ukraine Tension

Source: Thinkstock

Source: Thinkstock

Given the strong performance in the stock market over the past few weeks, and given the lackluster performance in assets such as gold and oil, it appears as if many investors have forgotten that there is tension between the United States and Russia over the Ukraine. However, while this tension may have disappeared from the headlines, it hasn’t abated. Therefore, shrewd investors should keep these geo-political concerns in their minds and in their trading strategies. If you wait for something big to happen, you will have missed the trading opportunity.

With this in mind, here are three trading ideas that investors should consider adding to now if they are concerned, as I am, that the aforementioned tension between the U.S. and Russia is far from over.

1. Defense Contractors

The logic behind this trade is pretty obvious. If there is heightened tension between the United States and Russia, then the former will likely ramp up its defense spending in order to prepare for a potential conflict. As a result, defense contractors stand to benefit.

These companies have been in an interesting position in the past couple of years because on the one hand, defense spending is down in the United States, and this has hurt the revenues of major defense contractors such as Northrop Grumman (NYSE:NOC) and General Dynamics (NYSE:GD), and on the other hand, these companies have been extremely well capitalized to the point that both have greatly increased stock repurchases and dividends, and so shares have climbed markedly. Here are a couple examples of the performance of defense contractors over the past year:

  • Northrop Grumman is up 44 percent
  • General Dynamics is up 47 percent
  • Raytheon is up 44 percent
  • Lockheed Martin is up 52 percent

So if these stocks can perform well while defense spending is falling, imagine what they can do if defense spending rises!

Finally, keep in mind that while a conflict with Russia may be the most obvious and immediate catalyst for these stocks, any military conflict has the potential to drive military spending and these stocks higher.