On the March 9 episode of The Morning Filter, hosts David Sekera and Susan Dziubinski discussed the recent increase in oil and defense stocks, exploring the ongoing investment opportunities in these sectors. Here’s a summary from the discussion.
Defense Stocks Surge Following Attacks on Iran
Susan Dziubinski: Let’s dive into the sectors that performed well and those that didn’t last week. First up are defense stocks, which saw an uptick due to recent events. Was this a smart investment decision, and are there still opportunities available?
David Sekera: This situation brings to mind Warren Buffett’s famous advice: buy when others are selling and sell when others are buying. Currently, I don’t think it’s an ideal time to invest in defense stocks. These companies primarily profit from selling complete defense systems rather than munitions alone. The best time to have invested in these stocks was last year when valuations were significantly lower.
We had previously recommended several defense stocks when the market was more favorable. Some stocks, like Lockheed Martin and Northrop Grumman, are now up between 40% and 50%. While it might not be necessary to divest entirely, I suggest this could be a good moment to cash in on some profits.
Is There Still Potential in Oil?
Dziubinski: Oil prices have surpassed a hundred dollars a barrel. Has Morningstar updated its oil price forecasts due to the war? Additionally, should investors consider oil stocks right now?
Sekera: At this moment, our long-term outlook for oil remains unchanged, with estimates at $60 for West Texas and $65 for Brent. Short-term price guessing isn’t feasible, so we adjust our models according to a two-year forward curve. Given that oil prices have nearly doubled recently, I would be more inclined to sell rather than buy at this time.
Overall, oil stocks have performed well, acting as a valuable hedge against geopolitical risks. Depending on when specific recommendations were made, these stocks have increased between 30% and 50%. Thus, while it’s wise to take some profits now, there’s no need to divest completely, leaving room to reinvest in areas of the market that may be underperforming.
