In recent weeks, headlines have been dominated by the turmoil in Iraq, and of course, oil prices have been on the rise, reaching levels not seen since the autumn of 2013.
Though stocks have held relatively steady at multiyear highs, it’s a fair bet that geopolitics in the Middle East will be uncertain enough to make equities a volatile place to be. Should the U.S. begin to use military force to deter the militant group that is making inroads in Iraq, that volatility could knock shares down in the coming weeks or even months. (In fact, as I write this, the Obama administration is reportedly mulling airstrikes and sending our Naval warships — at warp speed — to the region.)
Bur there’s some opportunity in a few select names that indirectly benefit from unrest in the region — or which merely provide investors a “defensive haven” against an even wider conflagration beyond Iraq’s borders.
Iridium
Perhaps the most obvious way to play geopolitical concerns is to invest in a company that counts the U.S. government among major customers. Iridium Communications (IRDM), the world’s second-largest provider of wireless voice and data services via satellite, garners 19% of its roughly $380 million in annual revenues from the federal government.
Much of the company’s government business spans voice and data services (among its bread-and-butter), but its federal business is conducted through the Department of Defense’s dedicated gateway, tracking devices, and aircraft and submarine communication systems.
Because Iridium provides services to areas where wireless or wireline capabilities — the physical infrastructure may not be in place — it is also an ideal way to play the need for global data coverage. The company has 66 low-earth orbit (LEO) satellites that orbit the earth every 100 minutes, and its satellites are linked in ways to ensure speedy cross-routing of data. Iridium’s Machine-to-Machine (M2M) services send and receive data from remote locations in a cost-effective manner. This service is used by oil exploration customers, such as Schlumberger (SLB) and Conoco-Phillips (COP), so there is an indirect play here on continued exploration and development of energy resources.
Iridium Next, the company’s next-generation network, is set to be released next year. The company projects the network refresh will boost capabilities and customer services by replacing all current satellites. With updated ground equipment included, Iridium Next will feature higher data speeds and capacity.
EnerNOC
You may know EnerNOC (ENOC) as a key player on the U.S. “demand response” market, wherein utilities look to prevent blackouts when power demand begins to outpace supply. EnerNOC’s software helps reduce the need to rely on peak power plants to meet demand. The company does this by remotely managing the demand itself, reducing air conditioning, for example, or “powering down” appliances that are not in use.
EnerNOC has been busy pushing into international markets, such as the U.K. and New Zealand, and by buying Enterlios, a German demand response firm and partnering with Marubeni to offer services in Japan. Amid rising energy prices, which in turn typically lead to inflation, look for electricity costs (and conservation efforts) to spur more adoption of smart grid technologies.
Williams Companies
Williams (WMB) represents a direct play on the gas industry, and one that just got even more attractive with its buyout of the remaining stake in Access Midstream Partners last month. The $6 billion deal gives Williams a strong foothold in shale gas gathering and transport.
Should oil prices continue their ascent beyond the current levels around $105, I would expect to see more investor focus on natural gas companies, as a cheaper, more plentiful and cleaner alternative to oil. Of course, there is the attraction that natural gas can be found in abundance domestically — the vast majority of the natural gas consumed in the U.S. is produced here, providing some insulation from the vagaries of Middle East unrest. Shale gas, via fracking, has seen explosive growth in the U.S., and the Access deal is notable for providing exposure to key U.S. shale plays including Eagle Ford, Permian and Marcellus.
Keep an eye on Iraq — and on your portfolio. These stocks will look a lot more attractive the longer this plays out.
Hilary Kramer is the editor of three financial advisory services designed to help individual investors profit from her stock-picking talents — Hilary Kramer’s GameChangers, Breakout Stocks Under $10 and High Octane Trader.
