Investors are wondering about what shares to buy during this volatile period where the war between Russia and Ukraine continues.
So far, the Russia-Ukraine war has led to chaos in the stock markets as Russia remains committed to take on Ukraine despite the war entering into its 14th day.
Investors are monitoring the potential economic impact from the disruptions in the global supply of energy as the war drags on.
Oil prices have soared above US$120 per barrel, leading to a rapid shift in focus towards “stagflation” in portfolio strategies.
Slower growth and more persistent inflation will drive investor fears, putting downward pressures on stock prices.
With that being said, here are some of the companies that investors should consider buying as they are likely to benefit from the war.
1) What Shares to Buy During War? Defense Companies
Defense companies are a good alternative during wartime as countries will increase their defense spending to prepare for a worsening environment.
I have written about some of these companies over the last month even before the war escalated. Here are the top picks on my watchlist: Lockheed Martin Corp (NYSE: LMT), Northrop Grumman Corporation (NYSE: NOC) and BAE Systems PLC (LSE: BA).
I like Lockheed Martin as it is the leading defense contractor and it has a strong and sustainable dividend track record while Northrop Grumman offers both growth and safety.
Meanwhile, BAE Systems is a good defense pure play to buy outside of the US as it is the largest European defense contractor.
2) What Shares to Buy During War? Oil Companies
As Russia is a big oil producing nation, the sanctions could lead to fewer supply as the war continues.
Oil prices have already soared above US$120 per barrel and this will benefit some of the oil & gas companies.
Among some of the oil & gas companies that are worth looking into includes Exxon Mobil Corporation (NYSE: XOM) and Chevron Corporation (NYSE: CVX).
The two companies are integrated oil & gas players with an emphasis on production, and are best positioned to benefit from the surging oil and natural gas prices.
Exxon has a strong free cash flow that is set to further increase with the surge in oil prices. This will help to sustain its dividend payout. At its current price, Exxon has a dividend yield of 4.2%.
Similarly, Chevron has a strong dividend track record and as both companies will benefit from the surging oil prices, I expect to see a bumpy payout.
The big risk with both Exxon and Chevron is the cycles of falling and rising oil prices, which are not within the companies’ control.
A rapid solution to the Russia and Ukraine war could cause a sharp decline in oil prices.
3) What Shares to Buy During War? Companies with High Cash Flow and Dividends
It is easy for us to panic as stock prices collapse but the selldown in stock prices actually offers opportunities for long-term investors to buy companies with high cash flow and strong dividends track record at a steep discount.
This strategy also hedges against the sharp market correction as companies with high cash flow and strong dividend track record tend to be more resilient.
While these companies are not immune to the decline in stock markets, it is not as badly affected as some of the growth companies.
Among some of those that I am keeping an eye on are Procter & Gamble Co. (NYSE: PG), Home Depot Inc. (NYSE: HD) and Unilever PLC (LSE: ULVR).
Procter & Gamble is an obvious choice as the consumer staples giant offers sustainable and decent dividend growth and steady earnings growth.
Meanwhile, home improvement chain and retailer, Home Depot, will continue to benefit from the huge market within the US residential housing. Its massive earnings base continues to support strong dividend growth.
As for Unilever, it is dominant in many of its product line-ups within the food, beauty care and personal care products. It has a strong dividend track record and is trading at an attractive valuation currently.
These companies were not spared from the recent selldown in the stock market but it offers an opportunity for long-term investors to accumulate companies that offer sustainable, attractive yields at a discount.
Put Your Money to Work by Investing
While it is easy to sell your shares in a market downturn, investors need to take advantage of the market turmoil instead of jumping on the panic frenzy.
By delving into three different sectors that offer upside in a prolonged war and buying into value stocks at a discount, investors can build a resilient portfolio to withstand the current market uncertainties.
Bear in mind that even if you don’t invest your money, inflation will eat into the value of your cash holdings.
The key to investing is consistency and when the market offers you “discounts”, put your money to work.
Disclaimer: ProsperUs Investment Coach Billy Toh doesn’t own shares of any companies mentioned.
Billy is passionate about the capital market and believes in investing for the long haul. Prior to this, he was an economist at RHB Investment Bank, covering Thailand and Philippines market. He also worked as a financial journalist at The Edge Malaysia and has experience working with an asset management firm. Aside from the capital market, Billy loves a good conversation over a cup of coffee, is a fitness enthusiast and a tech geek.