Here's How To Play Stocks As US-Iran Tensions Mount
Zacks Investment Research | Jan 06, 2020 07:35AM ET
Over the weekend, Iran and the United States traded threats after a top Iranian general was killed in a U.S. airstrike at Baghdad’s airport. Iran confirmed that it won’t any longer abide by the limits contained in the 2015 nuclear deal. Iraq’s Parliament has also asked for the removal of all American troops from Iranian soil.
President Trump, in the meanwhile, threatened possible “disproportionate” attacks if Iran strikes back. Trump also threatened sanctions against Iran provided it expels U.S. troops, adding to his earlier comments to target Iranian cultural sites if Iran retaliates.
Intensifying of the Middle-East conflict has undoubtedly affected the U.S. stock market. While all the major benchmarks ended in the red on Jan 3, the Dow in particular registered its worst day in four weeks. And expectations that Iran may retaliate may lead to further volatility in the market in the near term.
But stock market investors shouldn’t panic at all. Let’s admit, Friday’s losses didn’t even erase Thursday’s gains. Needless to say, stocks have been on a tear last year, with major bourses hitting a series of record highs. And 2020 is surely building hopes, thanks to improving economic data, U.S.-China trade truce and USMCA trade deal to replace NAFTA.
What’s more, historically, the broader stock market’s average return has mostly been positive in the 12 months following any geopolitical uncertainty. Take a look —
(Source: Bloomberg, L. P. and EconomicPolicyUncertainty.com)
In such a scenario, investing in low-beta companies seems prudent. Since we do expect at least short-term volatility, low-beta stocks are the best choice as they are less correlated to the index and thus tend to be less volatile. In this case, a low beta ranges from 0 to 1.
But eventually, the broader market will start gaining, which calls for investing in stocks that also have the propensity to grow in the near term. This way, an investor can earn risk-adjusted returns. Hence, some of the best choices are as follows —
Agile Therapeutics, Inc. (NASDAQ:AGRX) focuses on the development and commercialization of prescription contraceptive products for women. The company currently has a Zacks Rank #2 (Buy) and a beta of 0.75. At the same time, the company’s expected earnings growth rate for the current year is 37.9%, more than the Zacks Investment Research
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