It's TACO time: Charlie Aitken’s 3 market bets from the US–Iran conflict

After global markets sold off and oil surged on Monday, investors were bracing for further pain.

What a difference a day makes. 

As the TACO truism goes, on Tuesday Trump looked to chicken out on promoting a prolonged conflict and signalled the war in Iran could be over "very soon". Oil tanked from US$120 a barrel back to US$85 and global markets bounced in relief.  

For Regal's Charlie Aitken, that was enough to call off the alarm and start banging the table on opportunities. 

"I’d be strongly of the view that the worst of this is now behind us." - Charlie Aitken

In a note to investors, Aitken identified three investment opportunities that could run further as a result of the (so far) short-lived conflict in the Middle East. 

1. The defence spend super cycle

The flurry of attacks in the first days of the conflict have slowed down, says Aitken, and that has created an emerging investment theme. 

"You can see the rate of missile and drone exchanges have fallen sharply in recent days," he wrote. 

"Fundamentally, both sides are running low on “ammo”. Iran's capability to launch ballistic missiles have been dramatically degraded, while it’s widely reported that the US is running low on Tomahawk Cruise Missiles and Patriot/Thaad interceptors." 

"From an investment perspective you must now position for a 'defence spending super cycle'. Depleted stockpiles of guided missiles and munitions must be rebuilt, and remember every Tomahawk Cruise missile needs 20kg of rare earths. 

The demand for non-China sources of critical defence minerals is going to be enormous and extended."

He named four stocks that could be set to benefit: Iperion Ltd (ASX: IPX), Lindian Resources (ASX: LIN), Lynas Rare Earths Ltd (ASX: LYC) and Brazilian Rare Earths Ltd (ASX: BRE).

2. Nuclear powers up

Aitken's second big investment theme is nuclear. 

"The case for nuclear power just took an enormous step up," he wrote. "The world can’t remain reliant of a 21-mile-wide shipping channel for its energy needs." 

"I think you’ll see a major ramp up in nuclear generation approvals globally in the months and years ahead, which should translate to significantly higher U308 prices."

He pointed to the fact that US uranium ETFs were up 5% last night, and named the Vancouver-based NexGen Energy (ASX: NXG) as Regal's largest investment in the sector.

3. Keep droning on

Aitken's final theme was also spurred on by the developments he's seen in the current conflict, specifically the use of drones in modern warfare. 

"The world is going to have to invest heavily in drone detection and drone deterrent technology," he wrote. "Every airport, every major sporting arena, and every major CBD is going to need anti-drone capabilities."

He named two Australian stocks as potential beneficiaries Elsight Ltd (ASX: ELS) and Droneshield (ASX: DRO).

What he's also watching 

Another theme that has been reinforced by the recent conflict is what Aitken calls the "commodity price super cycle”.

He also says the "AI Hyperscaler capex cycle” remains unchanged, despite what is happening in the Middle East, and the AI "picks and shovels" play remains a core position for Regal.

He's also fairly bullish on the domestic market.

"All in all, Australia looks relatively and absolutely attractive and I expect to see further global flows into Australian alternative assets and the Australian Dollar over the months ahead."

While it may be premature to call this the worst of the market turmoil, one clear lesson from historical periods of uncertainty is that the rebound doesn't wait for anyone. Those looking to make the most of the volatility need to be ready to go. After all, TACO Tuesday doesn't come round every day.