The Russian invasion has not only caused death and hardship for the Ukrainian people, but some extreme volatility in the markets. On the war’s first day, February 24th, markets dropped but finished up with the S&P at 4,288.70. And after 6 weeks, we have dipped below $4,175 occasionally and are now up 6% from the war's first day to $4,560.
The sanctions are having a huge effect on the Russian economy, and an ETF with broad Russian exposure, the VanEck Russia ETF (RSX), has stopped trading as of March 4th at $5.65, down from its Valentine's Day price of $25.50. Fortunately, the U.S. stock market is resistant to problems in both Russia and Ukraine, with few business ties to either country.
We have put together these eight stocks that have the potential for the most significant change throughout the conflict; according to FactSet, they obtain the highest percentage of revenue from Russia and Ukraine.
Carnival, the world's largest cruise operator, was decimated throughout the Covid-19 pandemic, and unfortunately, Russia and Ukraine are responsible for 3.6% of its revenue. At the end of February, Carnival was priced at around $20.3, dropped to mid $15, and currently sits at $20.66. Morningstar believes that Carnival won't regain full profitability until 2023 and is a good value buy at its current level with a price estimate of $25.50.
EPAM Systems Inc. (EPAM)
Epam Systems is an engineering and consulting platform, generating 4% of its revenue from Ukraine and Russia. While the revenue is not a huge part of the company, according to Bank of America, Ukraine, Belarus, and Russia have a combined 58% of EPAM's billable staff, 24% of which is in Ukraine. It has tumbled from $382 to $174 and is now back up to $284. EPAM has stated that its Ukrainian staff has been moved to safety. Before the war, B of A had a target price of $782, but has dropped it to $231.
McDonald's Corp. (MCD)
The world's largest fast-food seller has 600 of its 36,000 global restaurants in Russia, and 4.2% of its revenue comes from Russia and Ukraine. According to CFRA Research, Covid-19's hampered Chinese sales are going to be more of an impact on McDonald's. CFRA has a target price for MCD of $275, and the current price is $248.
Mohawk Industries Inc. (MHK)
Mohawk is a flooring producer (rugs, tile, laminate, carpet), generating 4.3% of its sales from Russia and Ukraine. Its exposure is heightened due to ongoing ceramic production facility construction in Russia. Being dependent on foreign sales (45% of total) it may be susceptible to an increase in the USD's value. B of A has a target of $135, and Mohawk sits at $124.25, down from $140 in March.
PepsiCo Inc. (PEP)
With its global presence, PepsiCo generates about 4½% of its revenue from Russia and Ukraine. Pepsi is mostly insulated from the Ukraine war and saw its 4th quarter sales grow, but margins decrease, an impact of rising inflation. Pepsi should be monitored, and Morningstar, who reported Pepsi has stopped Russian operations, has a fair value of $154, and the price sits at $170.
Philip Morris International Inc. (PM)
The largest public tobacco seller generates 8% of its revenue from Ukraine and Russia, the most of any S&P500 stock. PM states that sanctions will not materially impact their sales, which Bank of America says accounts for 12% of PM's "heated tobacco" volume. B of A has a price target of $120, and PM stock is sitting at $96.73, up from mid $88 on March 11th.
PVH Corp. (PVH)
Hi-end apparel company PVH, which owns Tommy Hilfiger, Calvin Klein, and Heritage, has 3.6% of its sales in Ukraine and Russia. However, according to Morningstar, 70% of PVH's sales are generated outside the U.S. (in over 40 countries), and a strong dollar could affect sales. It does not help that its two major brands, Calvin K. and Tommy H., have had recent brand weakness in the U.S. Morningstar has a PVH price target of $129, and the stock currently sits at around $75.
Westinghouse Air Brake Technologies Corp. (WAB)
Westinghouse Air Brake is an equipment and service provider for rail and passenger transit vehicles, with 3.5% of its sales generated in Russia and Ukraine. However, CFRA is projecting good things for WAB into 2023 with increased railroad capital spending due to much Covid-19 reopening economies and recovery of cyclical railroad lows. CRFRA has a $100 WAB target price, and the stock currently sits at $90.42. CFRA does warn of a long-term threat of reduced fossil fuel relied upon transport reductions in developed economies which is the majority of WAB's business.
As the War Continues
Depending on how long the war continues, military contractors (Lockheed Martin, Northrop Grumman, and Boeing, the three American military powerhouses) will do very well, and any companies that will be part of the eventual clean-up of the war's aftermath will also profit.
Here is a list of the largest contractors in post-war Iraq:
Bechtel Group Inc.
D&J Enterprises ECC (Environmental Chemical Corp.)
Fluor Corporation IAP Worldwide Services Inc.
Kellogg, Brown & Root, a subsidiary of Halliburton Company
LJC Construction (also known as LJC Defense Contracting)
The Shaw Group Inc.
Any could be a potential clean up play at the conclusion of the war.
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