Trump Nixes Iran Nuclear Deal: Winners & Losers
Zacks Investment Research | May 08, 2018 10:53PM ET
The United States has pulled out of the landmark deal curbing Iran’s nuclear program and reimposing sanctions on the Islamic Republic. Trump said that it was a “horrible one-sided deal that should have never, ever been made.” He added that the “Iran deal is defective at its core” and it’s an “embarrassment” that the United States did little to restrain Iran’s nuclear ambition.
In the run-up to the U.S. decision, Israeli Prime Minister Benjamin Netanyahu claimed that he has evidence that the nuclear deal was nothing but fabrications and Iran was hiding nuclear weapons. Trump agreed that Netanyahu’s claims corroborated his own view.
So, what is the Iran nuclear deal? It was a historic agreement reached by Iran and several other world powers including Britain, China, France, Germany, Russia and the United States to reduce the Islamic Republic’s ability to produce two major components of nuclear weapons — plutonium and uranium. In return, Iran will be able spared of crippling financial sanctions. The deal also permitted Iran to export more crude provided the nation restricted its nuclear activities.
Let us now take a look at the potential winners and losers emerging from the end of the Iran nuclear deal:
Oil Near $70, Energy Stocks Gain
With the United States poised to reimpose sanctions on Iran’s petroleum sales, oil prices initially dropped but rebounded soon after. This has disrupted global oil production at a time when the crude market is tight.
The international benchmark, Brent crude oil, rose as high as 3.1% to $77.20 in early trading in London on May 9, while the benchmark price for U.S. crude oil climbed to $70.93. Shares of energy companies are, undoubtedly, rallying as crude prices hover near $70 a barrel. Energy shares are looking up after they fell out of favor when oil price slipped from $100 a barrel to under $30 in 2014. In fact, the energy sector of the S&P 500 has risen more than 10% in the past month to total gains of 3.1% so far this year.
From exploration and production firm Anadarko Petroleum Corporation (NYSE:APC) and Hess Corporation (NYSE:HES) to petroleum refiner Valero Energy Corporation (NYSE:VLO) , all have seen a rally in shares of more than 20% to date, easily outperforming the broader S&P 500’s decline of less than 0.1%. Meanwhile, smaller energy equipment and services companies, whose shares tend to rise with an uptick in oil prices, have gained even more.
At the same time, companies like Encana Corporation, Occidental Petroleum Corporation (NYSE:OXY) and Pioneer Natural Resources Company’s (NYSE:PXD) earnings are poised to improve further as oil prices scale north. This is because these companies have already posted better results in the most recent quarter when oil prices were between $50 and $60 a barrel.
As oil continues to hover around $70 a barrel and is probably heading toward $80 soon, these energy players will not only make the most of the higher spot prices but will also hedge into next year at higher oil prices.
But let’s admit that it’s just not oil prices that are changing investors’ attitude toward energy companies. Stronger balance sheets, steady rise in profitability and focus to boost shareholders’ returns are shaping the turnaround in the energy space.
Oil majors Exxon Mobil Corporation (NYSE:XOM) and Chevron Corporation (NYSE:CVX) have already seen the best first-quarter performance in years last month. In all, the highest first quarter year-over-year earnings growth is likely to be recorded in the energy sector, which is expected to surge 73.9% from the same period last year on 14.4% higher revenues.
Given this bullishness, some of the top-ranked energy shares one could consider are Evolution Petroleum Corporation (NYSE:EPM) , Pioneer Energy Services Corp. (NYSE:PES) , Oasis Midstream Partners LP (NYSE:OMP) and Rice Midstream Partners LP (NYSE:RMP) . These stocks flaunt a Zacks Rank #1 (Strong Buy) or 2 (Buy) and a Zacks Investment Research
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