It’s no surprise to see investors and traders bale out of share markets and plough into less-risky assets following news overnight of fresh US military action in Iraq. The American airstrikes that have killed top Iranian general Qassem Suleimani in Baghdad is seen as a major escalation in the power struggle in the Middle East, an act for which Tehran has vowed to enact “severe revenge”.
Traditional safe havens like precious metals and currencies like the Swiss franc and Japanese yen are thriving in Friday trade, while some classic defensive stocks such as gold producers are defying the broader gloom washing over equity markets to rise in end-of-week trade.
Take Highland Gold Mining (LSE: HGM), for instance. This is a share which has risen 4% on Friday to levels not seen since November, propelled by the rise in bullion prices. Gold was last trading at $1,550 per ounce, up 20 bucks on the day and at levels not seen since the spring of 2013.
I recently explained why there’s a galaxy of reasons why gold prices could surge in 2020, and this fresh face-off between the US and Iran provides another reason to expect the precious metal to surge in the months ahead.
And in my opinion, buying shares in AIM-listed Highland Gold is a great way to play this theme. With production increasing and gold values expected to remain robust, City analysts expect earnings to rise 12% in 2020. This leaves it trading on a rock-bottom P/E ratio of 9.1 times at current prices, leaving plenty of scope for the share price to keep rising. And what’s more, a mid-cap-beating 3.5% dividend yield adds an extra sweetener.
Footsie firm on the rise
Gains over at BAE Systems (LSE: BA) have been more modest this morning, though a 0.2% share price rise means that the defence giant has outperformed most other FTSE 100 shares. It stands to reason that the arms-makers have risen following new military action from the US, and to expect them to keep climbing as the situation in the Middle East potentially deteriorates.
Military conflict is a tragedy best avoided, but we cannot ignore the fact that as a major supplier to the US military, BAE Systems would be a key beneficiary of any escalation in hostilities with Iran by air, sea, ground and even in cyberspace. And as an interesting side note, the Footsie firm’s close relationship with Saudi Arabia, Iran’s main opponent in the region, could also receive a boost should the political and military situation worsen.
Strength in UK and US military budgets means that City brokers expect profits at BAE Systems to edge higher again in 2020, this time by 5%. And this leads to predictions of more annual dividend growth, meaning a chubby 4.2% yield. Throw a bargain P/E multiple of 12 times into the bargain too and I reckon the weapons maker is a top buy at this moment in time.
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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.