- The war in Iran has sparked turmoil on Wall Street, US stocks lower.
- Goldman Sachs analysts added ConocoPhillips and Loar Holdings to their conviction list.
- Oil spiked again on Tuesday, boosting the bull case for energy firms.
The latest market moves in response to the US war with Iran have led Goldman Sachs to update its list of high-conviction stock picks this week,
The bank added two stocks in the energy and defense sectors. The conflict in the Middle East comes amid a broader rotation into "old economy" plays as the market rewards "HALO" (heavy asset, low obsolescence) assets, like Goldman's latest stock picks.
"Investors are finally giving more value to old world capital intensive businesses that is now extending beyond just those investing in hard data center assets to other slices of the supply chain and the economy," the analysts wrote.
The firm added ConocoPhillips and Loar Holdings to its US conviction list in a note on Tuesday. Here's why.
ConocoPhillips nears a positive inflection point
ConocoPhillips, a US-based oil producer, has seen shares climb as energy-supply worries have ramped up this week.
The rising price of oil is expected to be the most significant factor in terms of the market and economic impact of the war.
Goldman highlighted ConocoPhillips specifically, with the firm's head of Americas natural resources equity research, Neil Mehta outlining the bullish view.
"The oil major is on the cusp of a positive free cash flow inflection over the next three years as it transitions from a long period of heavy project investment to boost its oil reserves into a new period of 'investment harvesting' characterized by major projects coming online and capex diminishing."
ConocoPhillips's free cash flow growth relative to its peers should lift returns and support the company's balance sheet, the bank said.
The positive setup for ConocoPhillips comes amid a strong macro backdrop for the oil market. Goldman sees a 10% upside from current levels for ConocoPhillips stock.
Loar Holdings presents M&A opportunities
It's early days for Loar Holdings, an aerospace and defense player, which is the other addition to Goldman's conviction list.
Noah Poponak, Goldman's managing director of the aerospace and defense sector, said the aerospace parts supplier is one of the highest quality "earnings compounders" in the space.
"With revenues roughly twenty times smaller than competitor TDG, LOAR has ample balance sheet capacity, and is a preferred buyer in a very fragmented aerospace supply chain — providing the company with a long runway to acquire assets and supplement strong organic growth," Goldman said.
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