Why ExxonMobil, Conoco Phillips, and Lockheed Martin Rallied on a Down Day for the Markets

Shares of oil and gas majors ExxonMobil (NYSE: XOM) and Conoco Phillips (NYSE: COP), as well as defense contractor Lockheed Martin (NYSE: LMT), rallied on Tuesday, up 2.8%, 4.2%, and 3.5%, respectively, as of 1:17 p.m. ET, even as the broader indices were down between 1% and 2% at that time.

Fortunately for their shareholders, but unfortunately for other sectors and the world, these critical companies saw their stocks rally as oil prices spiked on news that Iran was launching an imminent attack on Israel.

Shots fired in the Middle East

On Tuesday, a senior White House official said Iran is preparing to launch an imminent ballistic missile attack on Israel. Then at midday, the Israel Defense Forces reported Iran had in fact launched missiles toward Israel. The attack comes after Israel has struck against Iran’s proxy army Hezbollah operating in southern Lebanon. In addition, Israel is preparing a limited military operation in southern Lebanon to clear the area of Hezbollah militants.

Given that Iran and other Middle East neighbors are major oil and gas producers, the prospect of a wider regional conflict has the potential to disrupt oil supplies to the rest of the world. This is why both ExxonMobil and Conoco Phillips rallied along with oil prices, which were up nearly 4.5% to $71.25 as of this writing.

Higher oil prices would obviously benefit the top and bottom lines of Exxon and Conoco. Conoco is a pure explorer, but doesn’t have significant production in the Middle East region. And though Exxon is more diversified with midstream and downstream assets, it still makes the bulk of its earnings through oil and gas exploration, and therefore benefits when prices rise. Furthermore, Exxon derives most of its exploration from outside the Middle East.

And obviously, whenever geopolitical tensions ramp up, that usually bodes well for U.S. defense contractors’ stocks, with Lockheed Martin being the second-largest U.S. defense contractors by market cap.

Lockheed has actually had a tremendous year, with the stock surging over the summer on the back of better-than-expected earnings and more sales of its F-35 fighter jets to more allied countries.

In addition to general geopolitical news, Exxon and Lockheed also received two positive company-specific bits of news today. Exxon received approval from the Nigerian government to sell its Nigeria offshore assets to Seplat for $1.28 billion. Of note, Nigeria has been somewhat of a difficult geography for oil and gas operators recently, due to theft and corruption. Meanwhile, Lockheed Martin received a near-$3.9 billion naval contract for its Trident missile systems today, in addition to some smaller aeronautics contracts.

Neither news item is tremendously impactful to either company, given the overall size of these industry giants; however, these items were still likely incremental positives.

Oil and defense stocks: Hedges against geopolitics

While oil and gas stocks are out of fashion for many investors, given the focus on climate change and reducing emissions, they do offer a hedge against geopolitical events, such as the one we are seeing today. Remember, after Russia’s invasion of Ukraine in early 2022, traditional energy stocks went on to be some of the best performers that year.

So while oil and gas and defense stocks may not be as exciting as high-growth artificial intelligence (AI) plays these days, they do offer benefits in a healthily diversified portfolio. Moreover, most traditional energy and defense stocks also pay decent dividends.

So, today should be a reminder to investors of the role these types of stocks can play, offering hedges against geopolitical disasters, all while paying you growing dividends in the meantime.

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Billy Duberstein and/or his clients have no position in any of the stocks mentioned. The Motley Fool recommends Lockheed Martin. The Motley Fool has a disclosure policy.

Why ExxonMobil, Conoco Phillips, and Lockheed Martin Rallied on a Down Day for the Markets was originally published by The Motley Fool

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