Back in 2014, the international community condemned the Russian invasion and eventual annexation of the Crimean Peninsula from Ukraine. In response, global leaders imposed sanctions on Russia but the long-term impact was relatively muted despite the incident sparking armed conflict between Ukrainian forces and pro-Russia separatists. But now, with the Kremlin ordering a full-blown invasion of Ukraine, the impact is much widespread, including certain U.S. stocks.
Historically, such a notion seems to be an exaggerated concern. After all, the Russia sanctions from 2014 didn’t really move the needle much, neither for U.S. stocks nor Russian equities. However, to paraphrase those dangerous words in investing, this time, it’s different. Primarily, the free world — not including a few outliers — stood up against Russian President Vladimir Putin, which didn’t happen as vigorously in 2014.
Much of the positive sentiment for Ukraine — and on the other hand sharp condemnation for Russia — is due to the unparalleled bravery of Ukrainian President Volodymyr Zelenskyy. Rather than bowing out of the fight, Zelenskyy rose up to the moment and declared that he would stand and fight with his people.
I don’t care who you are, that Braveheart moment resonated to the ends of the universe. But it also raised some alarm for certain U.S. stocks: the Russia sanctions might boomerang back to them.
The other component to the escalating tensions is that Putin decisively changed the paradigm of the modern global order. You see, in 2014, other countries were hesitant to provoke Moscow with over-the-top Russia sanctions because they wanted to do business with the country. But now that the threat of violence has crossed the Rubicon into actual violence, what choice does the western world have? Therefore, certain U.S. stocks need to watch out.
While I certainly hope circumstances would be different, it seems we’ve reached the point of no return. Let there be no moral equivalency either: Russia had the option of diplomacy but chose not to take it. Because of this terrible decision, these U.S. stocks may face danger from the retaliatory effect of Russia sanctions.
- Halliburton (NYSE:HAL)
- Sturm Ruger (NYSE:RGR)
- Philip Morris International (NYSE:PM)
- PepsiCo (NASDAQ:PEP)
- Procter & Gamble (NYSE:PG)
- General Motors (NYSE:GM)
- McDonald’s (NYSE:MCD)
The obvious caveat to not just U.S. stocks but virtually every investment category is that this geopolitical flashpoint could really spiral out of control. For instance, the attack on the Chernobyl nuclear power plant was utterly outrageous. Though nuclear safety has increased significantly over the years, a sector-related incident will have far greater repercussions than economic retaliation for Russia sanctions.
U.S. Stocks to Watch: Halliburton (HAL)
A controversial name among U.S. stocks well before the eastern European flashpoint and subsequent Russia sanctions dominated headlines, Halliburton first became a dubious household name during the war on terror in Iraq. A high-ranking military whistleblower exposed a network of corruption that affected a wholly-owned subsidiary of Halliburton. Undoubtedly, news like this changed the public perception of U.S. military campaigns.
Now, Halliburton finds itself embroiled in another scandal. According to a Bloomberg report, Ukrainian gas executives have called on the company and its peers to cease operations in Russia in a bid to starve the Russian economy of vital cash. Of course, Halliburton could stay the course and continue to do business in Russia. But over time, such a decision could come back and haunt them.
Mainly, the outrage against Moscow is intense. All over the world, protests and demonstrations against the war are mounting. It’s no hyperbole to suggest that Halliburton could find itself on the wrong side of history.
While HAL stock has been one of the biggest beneficiaries of U.S. stocks, you should watch this space. Geopolitics could flip the narrative easily.
Sturm Ruger (RGR)
One of the more intriguing names among U.S. stocks to watch under the context of Russia sanctions is Sturm Ruger. A popular firearms company — and one of the few pure-play investments in the underlying arena — Ruger enjoyed immense demand due to the novel coronavirus pandemic. With people fearful of a loss of social order, RGR stock took off.
However, some of the enthusiasm has been tempered with the rising cost of ammunition. Obviously, guns don’t work too well when they have nothing with which to shoot. Being an American firearms manufacturer, most of Ruger’s products shoot U.S. or NATO-compatible caliber ammo. But some Ruger rifles fire the ubiquitous 7.62×39 caliber cartridge, colloquially referred to as the “7.62 Soviet.”
This Cold War-era cartridge is forever linked to the AK-47 rifle, which happens to be a favorite among shooting enthusiasts due to its relatively high power and low price. However, since the manufacture of this caliber typically originates in Russian factories, that’s a major no-no amid Russia sanctions that go back many years.
While I’m not entirely sure of the long-term impact, RGR stock is certainly one of the U.S. stocks to be careful about because Ruger’s 7.62 Soviet-firing weapons may lose tremendous relevance.
U.S. Stocks to Watch: Philip Morris International (PM)
A Swiss-American multinational corporation, Philip Morris International is literally 50/50 when it comes to U.S. stocks that may be affected by retaliation for Russia sanctions. However, it’s interesting to note that Switzerland imposed sanctions on Russia, thereby abandoning its longstanding historical neutrality.
So, while it’s a 50/50 play on this list, it’s 100% exposed to any retaliatory response from the Kremlin.
Unlike Sturm Ruger above, though, Philip Morris arguably has more to lose. Although it’s a terribly cynical statistic to bring up, these are facts whether we like it or not. Russia, per the Foundation for a Smoke-Free World, has the largest adult smoking population in Europe.
In fact, more than 60% of men and 22% of women in the country smoke. Even more alarming from both a global health perspective and for PM stock, in 2016, 15% of Russia’s youth smoked.
That said, the Russia sanctions will surely invite a crackdown on Philip Morris sales. In turn, this suggests big problems ahead for one of the most recognized U.S. stocks.
As a popular snacks-and-beverages brand the world over, PepsiCo fortuitously enjoyed an upside catalyst from the pandemic. As you’ll recall, during the early days of the health crisis, multiple jurisdictions shut down non-essential businesses which included bars and restaurants. Losing a critical avenue of the social experience, many consumers hit the grocery stores, stocking up on various junk food and sodas.
PepsiCo was one of the lucky U.S. stocks that managed to deliver positive year-over-year (YOY) sales growth in 2020. But because of the current situation in Ukraine, the future is a little bit hazy for PEP stock.
To be clear, the loss of Russian sales will not plummet Pepsi to the abyss. However, the company has two production plants and sells its products in Russia. Overall, it has about 4% revenue exposure to the country, which is not insignificant, considering that 2021 sales represented a 13% lift from 2020’s result.
While I wouldn’t necessarily hit the panic button, Pepsi’s exposure to retaliation means that it’s one of the U.S. stocks to approach with caution.
U.S. Stocks to Watch: Procter & Gamble (PG)
One of the turning points in global history was the fall of the Soviet Union. Soon thereafter, Russian citizens who never had a chance to acquire American and western brands were able to enjoy a little taste of capitalism and freedom, to put an optimistic spin on it. However, the Russian invasion of Ukraine threatens to be another turning point in history, albeit a negative one.
Now, it’s possible that the U.S. stocks which once encountered eager and enthusiastic arms will now be shown the door. One of the most deeply impacted is blue-chip giant Procter & Gamble. The household goods manufacturer invested around $900 million in Russia since the Soviet Union’s collapse.
According Bizjournals.com, “P&G produces about 60% of its own products sold in Russia within Russia itself. It makes Gillette razors and packaging in St. Petersburg, Russia, as well as Tampax tampons and Naturella menstrual pads in Novomoskovsk.”
Obviously, the loss of Russia will not translate to the loss of PG stock. However, with soaring consumer inflation crimping demand, PG stock will certainly be one of the U.S. stocks that will feel the effects of retaliation for Russia sanctions.
General Motors (GM)
Overall, Russia is a serious economic power. Based on global GPD rankings using 2017 data, Russia stood just outside the top 10 with a GDP of $1.58 trillion. Therefore, while the sanctions were necessary to hold Moscow accountable for its reckless actions, losing a major source of global wealth will almost certainly have an impact on many if not most U.S. stocks.
But automotive giant General Motors may soon begin to really feel the heat. According to a Reuters report, GM was among the international automakers that suspended some business in Russia following its invasion of Ukraine. In part, this measure means that the company has stopped exporting cars to the country.
To be fair, CNN reports that General Motors is not particularly exposed to Russia considering that the company only sells about 3,000 vehicles a year there through 16 dealer locations. Annually, GM sells more than six million cars across the globe. So the Russian impact is a drop in the bucket.
However, if the conflict spills over into other parts of Europe, GM risks a destabilizing event that could start crimping serious revenue channels. Thus, I’d keep a cautious profile here.
U.S. Stocks to Watch: McDonald’s (MCD)
Back in 1990, the first McDonald’s in the Soviet Union opened in Moscow. At the time, it must have felt like an alien spaceship landed there. Per History.com, “Throngs of people line up to pay the equivalent of several days’ wages for Big Macs, shakes and french fries.”
Perhaps the ultimate symbol of capitalism, the fact that McDonald’s even opened in Moscow — and more significantly, was met with a rapturous reception — suggested that times were changing for the great communist empire. Soon, that empire would collapse and people in the eastern bloc would experience freedom firsthand.
So it seems (sadly) that we’ve come full circle. As one of the U.S. stocks that will feel the pain of an aggressive response to Russia sanctions, McDonald’s received about 9% of its revenue last year from Ukraine and Russia. That’s no joke. Combined with a broader push toward healthier eating choices among younger American consumers, MCD stock is one of the names to watch closely.
I’m not suggesting that the Golden Arches will collapse. However, with a year-to-date (YTD) loss of over 12%, MCD stock isn’t looking too hot these days.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.