Can Russia-Ukraine Conflict Impact the Energy-Heavy TSX?

While a price hike due to demand is good for oil producers around the globe, a hike due to uncertainty created by war may not be as positive.

| More on:
sad concerned deep in thought

Image source: Getty Images

Yes. The conflict brewing across the sea could have many far-reaching consequences, most of which we can’t predict yet. Oil prices have risen to new highs since 2014, just because of the uncertainty created in the market, but they have steadied; for now, the sanctions imposed on Russia are not targeting energy. But that can change if the conflict evolves further.

While the energy sector is not the heaviest sector in the market, it’s massive enough to weigh the market down as a whole. Right now, a pricing spike may only boost the already strong momentum of the energy sector. But the same uncertainty that’s driving the prices upward may keep investors away from energy stocks.

And if an energy dip is on the horizon, there are two companies that should be on your radar.

A pipeline company

You can find a lot of stability (within the energy sector) by buying one of the pipeline stocks. Pembina Pipeline (TSX:PPL)(NYSE:PBA) is a smart choice from both a dividend and capital appreciation perspective. It has been a slow but steady grower for a while now, and an endorsement of its slow speed would be its post-pandemic recovery, which is still far from over.

Even after growing over 80% since the pandemic-driven crash, the stock is still trading at a 20% discount to its pre-pandemic value. But a benefit of this slow growth is that it has kept the yield reasonably high, and you can lock in 6% right now, possibly more if the stock starts dipping again.

The company is unlikely to slash its payouts, partly to maintain its dividend history and partly because, unlike other energy companies, the revenues of pipeline companies are tied to long-term contracts, which may suffer but not as much.

An oil producer

Canadian Natural Resources (TSX:CNQ)(NYSE:CNQ) is massive, even compared to Pembina. It’s an oil and natural gas producer mostly active in Western Canada but also has some international assets under its belt. With a decently balanced focus on natural gas, light and heavy crude oil, and some other relevant products, the company could prove to be a long-term holding at any given time.

However, it might be a great buy if the energy sector crashes. The stock has been growing at an incredible pace since the pandemic, and its growth since its market crash valuation has been phenomenal, to say the least (over 450%). Even though it hasn’t inflated the value yet, the stock may be considered overpriced and soaring higher than its fundamentals and history suggest.

And if it falls, the overdue correction might push the stock down further than other, relatively stabler stocks like Pembina. And if you buy, then not only will you be able to lock in a much more attractive yield than the current 3.5%, and you may also enjoy a similar capital appreciation.

Foolish takeaway

The conflict is not yet mature enough to cause a major market crash, but it is an unfortunate possibility. And this time, the recovery may not look like it did post-pandemic. However, it would still allow you to buy many good, long-term holdings at discounted prices.  

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 Adam Othman has no position in any of the stocks mentioned. The Motley Fool recommends CDN NATURAL RES and PEMBINA PIPELINE CORPORATION.

More on Energy Stocks

Arrowings ascending on a chalkboard
Energy Stocks

Beat the TSX With This Cash-Gushing Dividend Stock

Canadian Natural Resources stock is well set up to beat the TSX as it continues to generate strong cash flows…

Read more »

energy industry
Energy Stocks

2 TSX Energy Stocks to Buy Hand Over Fist Now

These two rallying TSX energy stocks can continue delivering robust returns to investors in the long term.

Read more »

green energy
Energy Stocks

1 Magnificent TSX Dividend Stock Down 37% to Buy and Hold Forever

This dividend stock has fallen significantly from poor results, but zoom in and there are some major improvements happening.

Read more »

oil tank at night
Energy Stocks

3 Energy Stocks Already Worth Your While

Here's why blue-chip TSX energy stocks such as Enbridge should be part of your equity portfolio in 2024.

Read more »

Solar panels and windmills
Energy Stocks

1 Beaten-Down Stock That Could Be the Best Bet in the TSX

This renewable energy stock could be one of the best buys you make this year, as the company starts to…

Read more »

Dice engraved with the words buy and sell
Energy Stocks

Is Enbridge Stock a Buy, Sell, or Hold?

Here's why Enbridge (TSX:ENB) remains a top dividend stock long-term investors may want to consider, despite current risks.

Read more »

Gas pipelines
Energy Stocks

If You Had Invested $5,000 in Enbridge Stock in 2018, This Is How Much You Would Have Today

Enbridge's high dividend yield hasn't made up for its dismal total returns.

Read more »

Bad apple with good apples
Energy Stocks

Avoid at All Costs: This Stock Is Portfolio Poison

A mid-cap stock commits to return more to shareholders, but some investors remember the suspension of dividends a few years…

Read more »