Iran Oil Shock Just Killed the Rate-Cut Story: 3 Stocks That Win

Since May, investors have been working under the false assumption that a peace deal with Iran would soon be forged. This led to a decline in both energy prices and future Fed rate expectations. Sadly, no deal is in hand, nor does it appear to be eminent, right? As such, energy prices and interest rates are back on the rise. That is bad news for many stocks, but great news for some others, like the three stocks we will feature in today's video. By the way, I'm Steve Wright, my everyone calls me Wrighty. I've been investing for over 40 years and currently a partner in wallstreetzen.com. Our claim to fame is our Zen Rings Quant model that helps identify the stocks most likely to outperform. And if you like discovering timely stocks, then do yourself a favor and hit that like button. It tells YouTube that you want to see more videos like this in the future. Let's get back to our first stock to buy in this unique environment, and that's Mercury General with the symbol of MCY. This is an insurance company that most certainly benefits from the higher rate environment. Now, plain and simple, the continuation of the conflict with Iran leads to higher energy prices, which keeps inflation aloft and subsequently increases the odds of future Fed rate hikes. Here's how those higher rates are a benefit to an insurance company like Mercury. Insurers collect premiums up front and invest that money before they ever pay out a claim. This is called the float on their money, which mostly is invested in bonds and other interest-paying vehicles. So, higher interest rates equates to higher investment income and more profits for the insurance company, and the latest earnings results back this up big time. Earnings were a whopping 58% above last year's level. Even more impressive is that it was more than a full dollar above expectations. This is not the normal kind of sleepy results you would expect from an insurance company. Higher investment income is not the only thing they're relying upon. Their combined ratio, which is a measure of underwriting profitability, was way above expectations as well. Now, that came in three times better than expected, which is shockingly good. So, this growth story is not just about interest rates. Now, I want to be straight with you. Wall Street coverage here is fairly nonexistent. That's precisely where the Zen Ring's quant model can fill the gap, giving you a deep dive on any stock when Wall Street is asleep at the wheel. All in all, the Zen Ring's reviews every stock by 115 different fundamental, technical, and AI factors. This all gets boiled down to an intuitive letter grade of A through F. Indeed, the higher the grade, the higher the expected share price results. Those 115 factors are further divided into seven underlying component grades, so you can see how a stock stacks up in key areas like a value, growth, momentum, and more. With that backdrop in place, it's now time to uh discover what's going on with Mercury, which does earn an elite Zen rating of A, which amounts to a strong buy recommendation. That is a fitting label because its stocks have outperformed S&P 500 by nearly 3:1 over the years. Digging into those component grades, we see a lot of strength starting with a top 22% showing for financials. Then we have top 8% for sentiment, suggesting that smart money crowd has interest in these shares. Better yet is the top 7% showing for value, which is based upon 21 different value metrics. And on top of that, we have the top 3% showing for AI factor. Now, this is our usage of AI and machine learning to pick up patterns in the data that often point to the most timely stocks. One risk worth flagging Mercury is a concentration with auto and home insurance in California. Yeah, it's a large and growing market, but it has its share of problems with Mother Nature, including wildfires and earthquakes. Any spike in that activity will most certainly harm the results. Even with that risk in mind, the reward looks so far superior. Not just because the extra investment income from higher rates, but also the ongoing strength in their underwriting operation. Now, layered on top the elite Zen rating of A, and the odds are strongly in favor of these shares outperforming in the months and years ahead. Now, that's a pretty good way to start our video today, and we still have two more stocks to go. And by the way, if you like connecting the dots between timely news events and stocks most likely to benefit, then you should join me for my next live training session this coming Monday. All in all, we focus on the current market outlook and my favorite stocks to outperform. Indeed, these live sessions are totally free, but you do need register. And you can do that now to join me this coming Monday. Just go to wallstreetzen.com/live. And before I get to that next stock, just a quick ask. If you enjoy this video, then please hit subscribe and the notification bell. That's because I release videos like this frequently, and those small little actions best ways to ensure you don't miss any of my future videos. All right. Next, we have a true energy giant in BP, which I used to call British Petroleum, all right. At first glance, the story here is about that is directly tied to the increase in energy as you get, right? This is a global integrated oil major that produces, refines, and trades crude worldwide. Most certainly, they benefit from higher oil prices as more money flows directly to the bottom line. But gladly, there's more to the investment story than just oil price alone. In short, we have a true turnaround story unfolding. For example, over the past 5 years, the company's earnings actually shrank. Yeah, shrank by about 4% a year on average. Now, compare that to the roughly 15% earnings growth of their peer. That is a dreadful multi-year underperformance, not just a one or two quarter rough patch, right? The reason was a massive pivot to renewable energy that painfully did not pay off. Last year was the low point when BP wrote down a rate of this 5.4 billion in impairment charge. This was mostly write-downs on its renewable energy and offshore wind investments. This left them with a measly 55 million in profits last year. That is nothing for a company of this size. Now, with that anvil removed from around their necks, they are now printing money. The The trailing 12 months has ramped up to 5.5 billion in earnings. Even more impressive is the past quarter alone where they came in with 3.9 billion in profits. That's not a gradual improvement. That is truly the phoenix rising from the ashes. And this turnaround is allowing them to ramp up their dividend that is already around 5% a year. Now, once again, the Zen Earnings Quant Model points to a very bullish case for these shares. This is not just your average A-rated stock, which is given to the top 5% of all stocks analyzed by our model. BP is actually in the top 1% pointing to a truly special fundamental profile. As you might expect from that top 1% ranking, the component grades are rock solid as well. It ranks in the top 23% for value indicating the stock is attractively priced at this time. Then we have top 20% of all stocks for safety. Now, that's unusual for energy stocks which typically are higher volatility because of the swing in energy prices. Next up is top 9% for momentum and coming down the home stretch we have top 5% showing for both growth and sentiment. A high growth rating is one of the best predictors of future earnings beats ahead. However, the best grade is the top 1% reading for our AI factor. This is our usage of AI machine learning to pick up patterns in the data that point to shares that are likely to outperform. Add it all up and BP offers one of the safer paths to outperformance as long as the energy prices stay elevated. Helping bolster your overall return is that hefty 5% dividend yield, definitely a nice cherry on top of the investment cake. All right, next up is the highest rated stock in this video. But first thing before I get there, if you want to stay one step ahead of the market then join me live every Monday. That's when I share my updated market outlook and trading plan to outperform. It's also where I unveil my trade of the week based upon our proven Zen Earnings Quant Model and my greater than 40 years of investing experience. It's a free event, but you do need to register. So just go to wallstreetzen.com/live or click the link in the description down below or scan the QR code on your screen, whichever side of me it's showing up on. Just pause the video for a moment. I'll be patient and wait for you. And then I look forward to seeing you there on Monday. All right, let's finish up strong with our third stock to buy in Marathon Petroleum with the symbol MPC. This is one of the largest oil refiners on the planet. They are a bit more insulated from the movement of energy prices. Instead, the profits come from the spread between what they pay for energy and what they can sell the refined product for. This is called the crack spread. Sorry, but I can never not laugh when I say crack spread out loud. Okay, there has been a long-term underinvestment in new refineries in the US, which is creating a very profitable cycle for the industry. That profitability only gets elevated when the conflict with Iran leads to disruptions in refineries in the Middle East. The proof of the pudding is with their earnings up 300% year-over-year to a whopping $8.6 billion in profit. As you would expect with earnings growth like that, shares have enjoyed a nice ramp up over the past year. However, there's ample reason to believe that shares will continue to outperform going forward. First, because the positive earning cycle for refiners, which is showing no signs of slowing. Second, it's because there are a full nine Wall Street analysts pounding the table with buy and strong buy recommendations. And third is, yes, what you would expect is the Zen Ratings review. I already stole a little thunder on this front previously when I say this is the highest rated stock in the video today. So, yeah, it's a Zen Rating A, but actually it right now is the second highest rated stock out of more than 4,600 we cover in the model. Yeah, second highest rated. Remember, these ratings are based on a full 115 fundamental, technical, and AI factor review. So, Marathon is truly elite on this front, which greatly increases the odds of future share price gains. Let's dig into the component grades, which confirms the impressive investment case for these shares, starting with top 17% showing for sentiment. Yeah, that means the smart money is certainly standing behind these shares. Better yet is the top 9% showing for financial strength, showing you it is a well-run operation. And for as much as shares have rallied to date, they are still in the top 7% all stocks for value. This is based on 21 different value metrics confirming they are truly attractively priced shares. Next up is the top 2% showing for growth which bodes well for more growth and earnings beats ahead. And the icing on the cake, there's a top 1% reading for the AI factor which points these continuing to be very timely shares. The best part of the MPC story is their profit growth may likely continue even if energy prices come down in the future. This goes back to the long-term underinvestment into refineries that will benefit Marathon and their peers for years to come. Let's take a step back to the top of the conversation today. A peace deal with Iran is looking further and further away. And that is reasonable to bet on higher energy prices which begets higher inflation which begets higher odds of future Fed rate hikes. Because of that, it behooves us as investors to find stocks most likely to thrive in that environment. That's why I used the Zen Ratings Quant Model to help dig up three stocks that are well positioned to excel in this unique landscape. This is a good time to remind you the Zen Ratings are updated daily on wallstreetzen.com. So be sure to check out the ratings for these or any stocks before making any buy, hold, or sell decisions. This now is a good time to bookmark this site for all your future stock research needs. Now I want to hear from you. Do you think that energy prices will stay elevated for a while longer? And how about the likelihood of Fed rate hikes? And which of the three stocks today is your favorite? Share it on the comment section below for the benefit of our investment community. And if you want to learn about another news catalyst that could lead to outside stock gains, then I strongly suggest you watch our video about the rare earth boom that could create two huge winners in the near future. Check it out now. >> Mhm.