Russia’s Potential Invasion of Ukraine Could Trigger Energy Stocks

Russia could beef up pressure on Ukraine, which could have a noticeable impact on energy stocks like Tourmaline Oil (TSX:TOU).

| More on:

Unfortunately, it seems like we’re stumbling from one crisis to another. Just as there’s light at the end of the tunnel of our battle with COVID-19, we’re now faced with a geopolitical conflict in Europe. Russia has amassed troops at its border with Ukraine. Global leaders are worried that an invasion could be imminent.

This crisis could be averted if the issue is resolved diplomatically. However, investors must prepare for the unknown risks right away. Here’s what you need to know about how you can protect your portfolio no matter what happens in this region. 

What happened?

Russia has beefed up its military presence at its border with Ukraine. As a result, the NATO alliance has also deployed frigates, fighter jets, and troops to the border for what they call “collective defense.” In short, tensions are rising, and if negotiations break down, it could erupt in an invasion. 

The Biden administration has admitted that this is a possibility and is considering sending troops there as well. Today, staff at the U.S. Embassy in the Ukrainian capital Kyiv were ordered to leave the country. 

So what?

A major conflict involving Russia and the U.S. could have devastating economic consequences. The energy sector could be impacted more than others, since Russia is one of the world’s largest oil and natural gas producers. 

It’s too early to say whether Russia’s energy operations will be impacted or if its supply of natural gas to Western Europe could be used as a bargaining chip. But the energy market is already strained. Crude oil and natural gas are already trading near multi-year highs. War could further disrupt supplies. Investors need to prepare for such an unfortunate outcome. 

Now what?

Protecting your portfolio against a potential invasion of Ukraine is not only easy but also cheap. Canadian oil and natural gas companies are still relatively undervalued. Tourmaline Oil (TSX:TOU) is a good example. 

The company claims to be Canada’s largest natural gas supplier. Over the past 12 months, the price of natural gas has exploded up by 65%. The rising cost of energy has already expanded Tourmaline’s top and bottom lines. Net income more than doubled to $1.66 billion last year, while the company is expecting $2.8 billion in free cash flow in 2022.

This trend could be further entrenched if the Ukraine conflict erupts. Lack of energy supply in Europe could push global prices up. Higher energy costs could impact the rest of the economy, sending stock prices lower. This is why Tourmaline stock could serve as a potential hedge. 

To be clear, this is a defensive strategy. If the conflict erupts, Tourmaline’s gains could offset some of the losses in the rest of your portfolio. If conflict is avoided (and I hope it is), Tourmaline’s valuation is so low that it has limited downside. The stock trades at just eight times earnings and 5.36 times forward free cash flow. 

Bottom line

Russia’s potential invasion of Ukraine could be devastating. Unfortunately, this could magnify the energy crisis we’re already living through. Cautious investors should consider protecting their portfolio with a little exposure to undervalued natural gas stocks like Tourmaline Oil. 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Vishesh Raisinghani has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.

More on Energy Stocks

analyze data
Energy Stocks

Buy 8,850 Shares of This Top Dividend Stock for $2,000/Month in Passive Income

Let's do the math on what it would take to generate $2,000 a month in passive income from Enbridge (TSX:ENB)…

Read more »

oil and gas pipeline
Energy Stocks

Is TC Energy Stock a Good Buy?

TC Energy stock has a lot going for it, but there are also a few red flags to consider before…

Read more »

Canadian energy stocks are rising with oil prices
Energy Stocks

Is Canadian Natural Resources Stock a Good Buy?

CNRL is an energy giant with a market capitalization near $100 billion.

Read more »

A worker overlooks an oil refinery plant.
Energy Stocks

Is Baytex Energy Stock a Good Buy?

Baytex Energy is a TSX stock that has massively underperformed the broader markets in the past decade, but it trades…

Read more »

Pumpjack in Alberta Canada
Energy Stocks

Is Suncor a Buy for its 4.2% Dividend?

Suncor Energy (TSX:SU) has a 4.2% yield. Is it a buy?

Read more »

engineer at wind farm
Energy Stocks

Energy Stocks to Buy Now: Top Picks for Canadian Investors

These companies have a solid business model and growing cash flows to support higher dividend payments and share prices.

Read more »

Trans Alaska Pipeline with Autumn Colors
Energy Stocks

Is Enbridge Stock a Good Buy?

Enbridge provides a 6.5% dividend yield right now.

Read more »

Oil industry worker works in oilfield
Energy Stocks

Is Suncor Stock a Buy, Sell, or Hold for 2025?

Suncor stock looks undervalued as the company continues to increases cash flows, earnings, and shareholder returns.

Read more »