The Eastern conflict has investors looking towards several market niches that stand to benefit the most: cybersecurity, oil & gas E&Ps, clean energy, aerospace & defense, and cryptocurrencies. The best-positioned players in these spaces have experienced an outsized bid in the past two trading days, but whether these respective rallies have room to run is dependent on the underlying assumptions.
Let’s discuss why each of these market niches has been receiving a disproportionate amount of love in the face of this Eastern conflict.
Cryptocurrencies are the most enlightening winner of the bunch as the bid here illustrates the recognized shortcomings of the world’s 180 distinct fiat currencies. The notion that a global superpower’s currency like the Russian Ruble can lose over 25% of its value in one week because other governments decided to put sanctions on the country is a scary thought (even if these sanctions are more than justified).
Bitcoin is up 15% yesterday as investors wrestle with the hard truth that fiat currencies are far less safe than we think and that cash under your mattress will do nothing but lose value over time. The 40-year high inflation pace that we’ve reached is causing that uninvested cash to lose value at an accelerating pace. Cryptocurrencies will be a part of our new economy whether you like it or not, and it would be prudent to invest today before their mass adaptation. Bitcoin (
BTC
), Ethereum (
ETH
), and Solana (
SOL
) are the three I would put my money in.
The epic devaluation of the Russian Ruble might eventually help to resolve this geopolitical crisis, but it also shines a light on the fragility of fiat currency. That’s why it’s time to get some exposure to cryptocurrencies, and Riot Blockchain
RIOT
is a great place to start. RIOT is in an advantageous position to capitalize, considering its positioning as the largest bitcoin miner following its recent acquisition of Whinstone US. It controls approximately 12% of the country’s bitcoin mining market and seems to be taking more share every day (management is expecting 20%+ share by the end of 2022). Shares have dropped considerably from early 2021 when meme investors took it to heights past the price of bitcoin itself. But now it’s at a much more reasonable valuation, especially when considering the future potential. Read the complete commentary for a lot more on this new addition.
Cybersecurity is not just a clear-cut winner of this unfortunate invasion but a long-term winner where valuations are less of a concern than market share functionality as investors realize how essential this technology is for the future of our rapidly digitalizing economic structure. I have been trading CrowdStrike
CRWD
, the best-in-class AI-power cloud-incepted cybersecurity platform on the market, call options over the past few days to take advantage of the momentum here. This space has a lot of room to rally in the coming months.
Sustainable energy stocks have become a sector of outsized interest since the pandemic began as the existential threat of mortality naturally leads humans to focus on the health of our planet. The Russia-Ukraine situation highlights that the global economy’s reliance on oil & gas is also dangerous from a financial standpoint as its long-term supply starts looking thin. Many of the clean energy space stocks have been crushed in the past 3 months as rate expectations took off, and the recent energy crisis in Europe catalyzed a much-needed reversal for these underappreciated equities. If you’re looking to invest in new economy energy companies, I would do so with the iShares S&P Global Clean Energy ETF (ICLN). As a long-term play, this basket of stocks looks ripe for the picking right now.
Oil & gas E&P (exploration and production) have been one of the few spaces in this market with a 2022 tailwind as oil prices shoot 50% higher in the first 2 months of the year. Energy E&Ps like Occidental
OXY
, Apache
APA
, and Devon Energy
DVN
have seen year-to-date gains of between 30% and 50% (the latter being OXY). They have been some of the most significant beneficiaries of both this inflationary recovery and the escalating energy crisis in Europe, which was just made much worse by Russia’s western opposition. I’m not chasing any energy plays here as I don’t believe this trade has much more room to run.
Defense giants like Lockheed Martin
LMT
, Raytheon Technologies
RTX
, Northrop Grumman
NOC
, and General Dynamics
GD
have received substantial bids over the past 2 trading days as investors assess the potential increase in order flows that this latest geopolitical dispute could generate if it escalates further. I wouldn’t be chasing this rally, as much of the potential short-term upside has largely already been priced in. I doubt that the US will materially increase their already massive defense budget, which funds most of these companies’ operations.
Don’t be overzealous with any all in plays during this time of elevated volatility (30+ VIX)
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