Russia’s invasion of Ukraine is nearly 3 weeks now, and the conventional wisdom still hasn’t settled on an outlook. A combination of poor Russian performance has run across the grain of stout Ukrainian resistance, creating a military picture that no one had expected, along with a heft shock to the world’s commodity and stock prices.
But there are some possible bright spots for investors looking for a hedge against the geopolitical turmoil. Cybersecurity, defense, and certain energy stocks are likely gainers in the coming months, as the war situation and its economic fallout will put a premium on these services.
With this in mind, we’ve used TipRanks’ database to pinpoint three such stocks. Each has earned a “Strong Buy” consensus rating from the analyst community and brings strong growth prospects to the table. Let’s take a closer look.
CrowdStrike Holdings (CRWD)
Let’s start in cybersecurity, a field that is getting plenty of press as black-hat hacking is known to be a non-kinetic military strength of the Russians – and for that matter, of Ukraine, too. CrowdStrike was an early entrant to the cybersecurity niche, and has become a leader in the field. The company’s Falcon Endpoint Protection product line is an industry standard, and offers customers a wide range of options in solutions for online and network security, with 22 cloud modules available on the popular SaaS model.
CrowdStrike’s services – and its revenues and earnings – have all been gaining traction over the past year, with the increases starting long before Russia embarked on ratcheting up the tensions with Ukraine. The pandemic-inspired push to remote work, with a consequent increased need for network security, supported the gains; the Ukraine situation will only increase the spotlight on the need for proactive digital safety measures.
A look at the company’s recent earnings report, for fiscal 4Q22, will clarify the story. The top line came in at $431 million, up 63% year-over-year and well above the forecast expectations of $412 million. At the bottom line, non-GAAP EPS was reported at 30 cents, more than double the 13 cents reported in the year-ago quarter. EPS was up for the third quarter in a row; revenues have been recording sequential gains for the past two years.
The consistently strong revenues and earnings are reflected in the company’s cash position. CrowdStrike reported $442 million free cash flow (FCF) for its Q4, a company record, and had $2 billion in liquid assets on hand to close out its fiscal year.
Covering CrowdStrike for RBC, analyst Matthew Hedberg sees the strong performance continuing into the company’s fiscal 2023. He writes: “With a record pipeline into Q1/23 aided by the recent Russia/Ukraine situation and consistent track record of outperformance, we believe the bias is towards additional upside to estimates through FY/23. Overall, another strong quarter as CrowdStrike remains in rare air with outsized growth and impressive margin and FCF expansion…”
These comments support Hedberg’s Outperform (i.e. Buy) rating, while his $275 price target implies an upside of ~44% going forward. (To watch Hedberg’s track record, click here)
While Hedberg is particularly bullish on CrowdStrike, he is hardly an outlier here. The stock has picked up 23 reviews in recent weeks, and these break down 22 to 1 in favor of Buy over Hold. The shares are priced at $190.54 and their $264 average target suggests a one-year upside of ~39%. (See CRWD stock analysis on TipRanks)
Raytheon Technologies (RTX)
For the second stock, we’ll shift over to the defense industry. Raytheon has a long history in aerospace and intelligence technology, designing and manufacturing aircraft engines, guided missiles, avionics systems, and communications and surveillance satellites, among other advanced products. The company is a major contractor for the US military, and provides important weapons systems such as the Javelin and Stinger missiles that have been making headlines in the Ukraine conflict, the Iron Dome anti-missile system, the Tomahawk cruise missiles, and the famous Patriot surface to air missile.
The defense industry is one of the modern world’s major cash cows – that was an established fact long before the Russian attack on Ukraine. Raytheon has been showing revenue and earnings increases for the last couple of years, and the company’s 4Q21 report, released in January, was no exception. While the top line of $17.04 billion was up just 4% year-over-year, earnings were stronger; adjusted EPS, at $1.08, beat the $1.02 forecast and rose 45% from the year-ago quarter.
Among the bulls is Morgan Stanley analyst Kristine Liwag, who writes of Raytheon’s current situation: “The US and NATO allies in Europe continue to deliver anti-tank and anti-aircraft weapons to Ukraine and look to replenish stocks… In 2017, the US State Department also cleared a $10.5bn sale of higher-end missile defense systems to Poland, including RTX’s PATRIOT System… We see the situation in Ukraine potentially spurring additional FMS for similar higher-end systems. We also see conviction around nuclear modernization spending potentially benefitting RTX (Long-Range Standoff Weapon)… We continue to see the ongoing conflict placing upward pressure on FMS and see RTX as best positioned given exposure to missile defense…”
In line with this outlook, Liwag puts an Overweight (i.e. Buy) rating on RTX along with a price target of $124, which indicates room for 27% share appreciation in the year ahead. (To watch Liwag’s track record, click here)
Overall, Raytheon’s shares are getting some love from Wall Street’s analysts, who collectively see them as a Strong Buy. That rating is based on a 5 to 1 split between Buy and Hold reviews. The stock’s $108.17 average price target implies an upside of ~12% from the current trading price of $96.92. (See RTX stock analysis on TipRanks)
Cheniere Energy (LNG)
For the last stock, we’ll turn to the natural gas sector of the hydrocarbon industry. The impact of the Ukraine conflict here should be clear to anyone who has been following the news. Russia is Western Europe’s single largest provider of the fuel, and the Russian and German governments, prior to the Ukraine war, were working on the Nordstream 2 gas pipeline, a Russian project that was intended to provide gas to Europe while bypassing Ukraine. Since the invasion started, the German government has halted cooperation on that pipeline, and Western sanctions generally are preventing Russia from getting oil and gas products to the world markets.
Cheniere Energy, a Houston-based liquified natural gas firm, is ideally positioned to gain in this environment. The company’s business is, as its ticker suggests, liquifying natural gas prior to long-distance transport. Cheniere’s assets include three gas pipelines, totaling over 300 miles, and two export terminals at Sabine Pass, LA, and Corpus Christi, TX. The export terminals include storage tanks totaling 27 billion cubic feet and 4 dock facilities with one more under construction. Cheniere boasts that it is the largest natural gas liquification company in the US, and the second largest in the world.
Backing that boast, the company’s full-year revenues increased from $9.36 billion in 2020 to $15.86 billion in 2021, a year-over-year gain of 69%. In 4Q21 alone, Cheniere saw the top line grow y/y from $2.79 billion to $6.56 billion, gaining 135% over 12 months. The gains were fueled by increases in both demand and prices.
Revenues were up, earnings were down. In the fourth quarter, the company showed a net loss for shareholders of $5.22, a far cry from the $1.85 profit that had been expected. The company attribute the losses to the use of commodity derivative instruments and unfavorable exchange positions.
Despite the steep recent EPS losses, LNG stock is up over the past 12 months. Since this time last year, Cheniere has seen its shares gain a robust 73%.
Sean Morgan, energy analyst for Evercore ISI, notes that the Ukraine conflict will have the effect of driving European gas consumer toward the US – and that Cheniere is well-situated to gain from that in the long term.
“The unfortunate news of a ramped up Russian invasion of Ukraine, has led European leaders to question the future of their energy supply stack. In the short-run, Europe remains utterly dependent on Russian gas with major producers such as Cheniere, Qatar, and Australia operating close to full capacity. However, in the long-run we expect Europe will lean more heavily into U.S,” Morgan opined.
“LNG exports to offset a deliberately decreasing reliance on cheap Russian pipeline gas. We have said that Stage 3 expansion at Corpus Christi was well on the way before the sad Ukraine news. However, we expect the coming global energy realignment to create a greater demand-driven pull for U.S. export capacity expansion. Cheniere is structurally advantaged vs. peers to capture that export growth potential in South Texas, with access to Permian gas supply, and ample land on the water in Corpus Christi,” the analyst added.
Morgan rates Cheniere’s shares an Outperform (i.e. Buy), and his $152 price target implies ~17% upside from current levels. (To watch Morgan’s track record, click here)
The vital position of natural gas in the energy industry is reflected in Cheniere’s unanimous Strong Buy consensus rating, based on 15 recent analyst reviews. CLICK HERE TO READ MORE
To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights.
Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.