2 Defensive Energy Stocks to Hedge Against Trade Turmoil

Key Points

• The back-and-forth on U.S. tariffs has rocked the market and set many investors on edge.
• While some may look for opportunities to make aggressive plays during periods of market instability, others prefer a more risk-averse, defensive approach.
• Two energy firms—Talen and Clearway—may provide some stability in an uncertain tariff landscape.

The Trump administration imposed new tariffs on goods from China in February 2025 while simultaneously delaying promised tariffs on items imported from Canada and Mexico. As of February 7, 2025, the future of these latter two tariffs remains unclear. Nonetheless, the market has been jolted by the possibility of large-scale changes to the flow of trade between the United States and one or more of its major trading partners.

Naturally, investors have looked for ways to capitalize on this tariff uncertainty. At the same time, though, an unpredictable tariff landscape also poses threats to the stability of the market and investor portfolios, and more risk-averse participants are likely to opt for defensive plays that are likely to withstand any surprising shake-ups.

While it's never possible to predict whether a company will be a strong defensive play with absolute certainty, two names may be worth a second look for investors taking this more cautious approach: Talen Energy Corp. NASDAQ: TLN and Clearway Energy Inc. NYSE: CWEN. Both are energy sector firms, but they occupy distinct spaces in this massive sector.

Talen Energy: Diverse Operations Insulate From Turbulence

Talen is a diversified energy company operating in the U.S., where nuclear, natural gas, coal, and oil power infrastructure is based. Its production capacity is 10.7 GW, placing it among the largest power infrastructure firms in the country. Talen's diverse portfolio is a key benefit during times of uncertainty.

As an example, a recent Bank of America analysis named TLN shares a Buy based on the potential for strong data center growth in its nuclear division. However, even if demand for clean energy in data centers—or AI applications—should falter, Talen's other power sources remain strong.

With a new reliability-must-run agreement with PJM Interconnection, Talen has secured a compelling alternative revenue stream. The agreement, announced on January 27, provides $180 million in fixed annual payments to Talen to operate two power plants in Maryland through May 2029. Further, the agreement includes the reimbursement to Talen of fuel costs and variable operations and maintenance expenses.

Talen Energy is a favorite across Wall Street, with all 11 analysts covering the firm giving it a Buy rating. This is despite the fact that TLN shares have rallied more than 250% in the last year as of February 7, suggesting that analysts still believe investors have a compelling reason to consider Talen.

Clearway Energy: Compelling Renewable Energy Profile

Renewable energy producer Clearway has stability thanks to its long-term power purchase agreements with large corporations and utilities companies. Clearway is also one of the more focused renewable energy firms in the United States, particularly since it jettisoned its thermal assets in favor of higher-return wind and solar projects. It also has a significant energy storage capacity.

Clearway's appeal to data centers is also clear, given the surging demand for clean energy sources and the company's focus on building energy infrastructure. For investors wondering about the sustainability of renewable energy during a period of increased government focus on traditional fossil fuel sources, Clearway's impressive 6.49% dividend yield may be appealing. Clearway's anticipated 7.5% to 12.5% compound annual growth rate for its cash available for distribution in the coming two years signals the firm's optimism that it will be able to maintain and even grow its dividend in the near term.

Unlike Talen, which has experienced significant share price appreciation in the last year, Clearway's stock has only risen by 11% during that period. Analysts generally believe there is more room to grow, as well. Five out of seven analysts have rated CWEN shares a Buy, and together, they have assigned a consensus price target of $32.57. Given the current price of around $26 per share as of February 7, this represents pretty significant upside potential for the sector of nearly 25%.