Investing in the Iraq Breakup: 3 Stocks to Benefit

Iraq is falling apart, and as al-Qaeda fighters tear through the north and west of the country, a split seems more and more likely. But some companies are positioned to benefit from this.

Jun 18, 2014 at 11:42AM

What a difference a week makes. This time last week Iraq was struggling with some militants in Anbar Province, the same basic situation that had gone on since January. Now, those militants have seized oil-rich Mosul and are fighting over Tikrit and Samarra. More surprising still, the Kurdistan Regional Government has used the instability as a pretext to seize Kirkuk, another oil prize in northern Iraq.

The Islamist militants are calling themselves the Islamic State of Iraq and Syria (ISIS), a spinoff group from al-Qaeda in Iraq, the primary insurgents during the U.S. war there. ISIS now spans a large portion of both Iraq and Syria, and really seems to be in the process of creating an Islamic state there, tearing down parts of the old Iraq-Syria border that bisects the region.

Iraq seems to be heading toward partition at this point, with ISIS taking the west, the existing Iraqi government retaining the east and southeast, and already autonomous Iraqi Kurdistan moving further toward outright secession.

Investing in what comes next
With Iraq busy struggling to cope with ISIS, it is in no position to contest the long-standing independence ambitions of Kurdistan, which would find itself as an independent and important energy producer.

Since the 2003 U.S. invasion, Kurdistan has been awash in foreign investors looking to cash in on their oil riches, and three big foreign players have the most ongoing activity there: ExxonMobil Corp (NYSE:XOM), Chevron (NYSE:CVX), and Total SA (NYSE:TOT).

For a long time, exporting out of Kurdistan has been dicey business, with Iraq's central government claiming full authority and the regional government trying to export through Turkey over the central government's objections. The margins are already huge -- so huge ExxonMobil has been eagerly divesting itself from Iraq's massive oil fields to focus on Kurdistan and has secured rights to fields around Kirkuk.

Margins will only get better as Kurdistan's status becomes more settled. ExxonMobil's Kurdish gamble looks to pay off huge, and its new contracts with Turkey are set to make the company the big winner in all of this.

The path to Europe
There's more good news for Kurdish oil, too, as the pipeline to Turkey's Mediterranean port of Ceyhan gets underway, allowing Kurdish oil to be sold at much higher prices for exports to the starving European energy market.

Europe's in a bad way as far as oil is concerned, with traditional suppliers like Libya and Syria trending down to zero exports in the face on unrest, and Kurdish oil will be a big relief for them, one which can command some big profits.

Chevron has seen the writing on the wall for a while, amassing a large Kurdish portfolio in a short time, even though it meant a major backlash from the Iraqi government. Total SA, a little more reluctant to go all-in because of its deals in Iraq itself, have also been picking up speed of late, and have some lucrative prospects.

By the numbers
In the end it's hard to find anything not to like about these three, and they're all fine choices for investment, which should benefit from the growth in Kurdistan's market.

ExxonMobil is the biggest player, but also the biggest company. Even though 2.7% seems like a nice dividend, it's actually the worst of the three, and its forward P/E of 13.31, while by no means bad, is also the worst of the bunch.

Chevron was a bit later to the Kurdistan game than ExxonMobil, but has really gone gangbusters there. The company's forward P/E is lower at 11.33, its dividend is higher at 3.5%, and Chevron has an impressive $16 billion in cash on hand, which should make its aggressive acquisitions easy to continue. 

Total SA wins out on the numbers, however, with a forward P/E of 10.62 and a dividend yield of 4.8%. It even wins out in cash on hand with $23.6 billion. Still, at this point I prefer Chevron as a Kurdistan play because it has been more aggressive in acquisitions.

Still, all three companies are worth considering for your portfolio, and their already promising forward PEs should look even better when factoring in the rising oil prices an Iraqi breakup no doubt portends.

Do you know this energy tax "loophole"?
You already know record oil and natural gas production is changing the lives of millions of Americans. But what you probably haven't heard is that the IRS is encouraging investors to support our growing energy renaissance, offering you a tax loophole to invest in some of America's greatest energy companies. Take advantage of this profitable opportunity by grabbing your brand-new special report, "The IRS Is Daring You to Make This Investment Now!," and you'll learn about the simple strategy to take advantage of a little-known IRS rule. Don't miss out on advice that could help you cut taxes for decades to come. Click here to learn more.

Jason Ditz has no position in any stocks mentioned. The Motley Fool recommends Chevron and Total (ADR). Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

A Financial Plan on an Index Card

Keeping it simple.

Aug 7, 2015 at 11:26AM

Two years ago, University of Chicago professor Harold Pollack wrote his entire financial plan on an index card.

It blew up. People loved the idea. Financial advice is often intentionally complicated. Obscurity lets advisors charge higher fees. But the most important parts are painfully simple. Here's how Pollack put it:

The card came out of chat I had regarding what I view as the financial industry's basic dilemma: The best investment advice fits on an index card. A commenter asked for the actual index card. Although I was originally speaking in metaphor, I grabbed a pen and one of my daughter's note cards, scribbled this out in maybe three minutes, snapped a picture with my iPhone, and the rest was history.

More advisors and investors caught onto the idea and started writing their own financial plans on a single index card.

I love the exercise, because it makes you think about what's important and forces you to be succinct.

So, here's my index-card financial plan:


Everything else is details. 

Something big just happened

I don't know about you, but I always pay attention when one of the best growth investors in the world gives me a stock tip. Motley Fool co-founder David Gardner (whose growth-stock newsletter was rated #1 in the world by The Wall Street Journal)* and his brother, Motley Fool CEO Tom Gardner, just revealed two brand new stock recommendations moments ago. Together, they've tripled the stock market's return over 12+ years. And while timing isn't everything, the history of Tom and David's stock picks shows that it pays to get in early on their ideas.

Click here to be among the first people to hear about David and Tom's newest stock recommendations.

*"Look Who's on Top Now" appeared in The Wall Street Journal which references Hulbert's rankings of the best performing stock picking newsletters over a 5-year period from 2008-2013.

Compare Brokers