2 Energy Stocks to Play Both Sides of Tariff Uncertainty

Key Points

• The United States imports the majority of its crude oil from Canada.
• If energy were taken out of the equation, the United States would have a trade surplus with Canada.
• A third of the United States crude oil is imported from Mexico.

President Trump’s 25% import tariffs on Mexico and Canada and an additional 10% tariff on China are causing investors to seek shelter from the potential fallout. Canada is of particular concern since it is a top supplier of energy to the United States, including crude oil and natural gas.

The United States imports most of its crude oil from Canada. According to the Cato Institute, if energy imports were taken out of the equation, the United States would have a trade surplus with Canada. A third of all the crude oil imported by the United States also comes from Mexico. If energy imports are keeping you up at night, here are two stocks in the oils/energy sector to trade in each direction of the tariffs.

Cenovus Energy: After a 70.4% Drop, Now May Be Time to Buy the Dip   

The fear of import tariffs being levied on Canadian energy has been a key driver for the 36.8% drop in the stock of Canadian oil producer Cenovus Energy Inc. NYSE: CVE. Shares are trading down 8.65% year-to-date (YTD) as of Feb 28, 2025.

Cenovus is one of Canada's largest heavy crude oil producers. Its heavy crude oil from the Alberta oil sands is ideal for United States oil refineries located in the Midwest and Gulf Coast. These factories are designed to process oil sands bitumen, a heavy crude oil type.

While the general public has been told that the United States is one of the largest producers of oil, most of it is considered "light sweet" oil, and most U.S. refineries are designed to process heavy crude oil.

Therefore, exporting light sweet crude is more profitable than trying to refine it domestically. The oil has to be shipped overseas to be refined into usable fuels, which is more costly than sticking to heavy crude oil. Cenovus is a major exporter to the United States due to its proximity to the country.

Cenovus Is Already Established With the U.S. Infrastructure

The U.S. already has established pipelines transporting heavy crude oil from Canada to the Midwest, which are even shorter and cheaper than shipping from the Gulf Coast. Midwest refineries rely on Canadian oil. If Trump applies a tariff on all imports, including Saudia Arabia, then Canadian crude oil imports would still be the cheapest.

Cenovus Is Locked in Tight With Phillips 66 Refineries

While Cenovus owns its two oil refineries in Saskatchewan, Canada, they also have a 50% ownership stake in two refineries in the Midwest, United States, with Phillips 66 NYSE: PSX. The Lima Refinery produces low-sulfur gasoline and gasoline blends, jet fuel, ultra-low sulfur diesel, petrochemical feedstock and other byproducts, transported by pipeline and rail cars to market in Ohio, Illinois, Indiana, Pennsylvania and southern Michigan.

The Superior Refinery in Wisconsin produces gasoline, diesel and asphalt and refines light and heavy crude oil from North Dakota and Western Canada. It's over a century-old Toledo Refinery in Oregon, Ohio, and can process up to 160,000 bpd, including 90,000 bpd of heavy oil. It can produce 3.8 million gallons of gasoline, 1.3 million gallons of diesel and 600,000 gallons of jet fuel daily.

Cenovus Could Sell More Oil to Asia

Should there be a disruption in demand from the United States as a result of tariffs, Cenovus has no shortage of demand for its black gold. It could opt to sell more oil to Asia. China could buy more oil via the Trans Mountain pipeline. However, the export capacity is limited to around 590,000 barrels per day (BPD) versus 4 million BPD to the United States.

Cenovus reported Q4 2024 earnings per share (EPS) of 5 cents versus 17 cents consensus analyst estimates, missing by 12 cents. Upstream production rose 1% year-over-year (YoY) and 6% quarter-on-quarter (QoQ) to 816,000 barrels of oil equivalent per day (BOE/d).

It reached the highest ever quarterly and annual Oil Sands production rates of 628,500 BOE/d and 610,700 BOE/d, respectively, including record annual rates at Foster Creek and Lloydminster thermal assets. Downstream operating performance was improved, with 97% in Canadian Refining and 92% in U.S. Refining. Refining expenses, excluding turnaround costs, fell 18% YoY to $10.89 per barrel.

The Worst Case Is Likely Already Price In

Cenovus stock recently hit 52-week lows, mostly driven by tariff fears. The market always tends to overshoot in its reactions. Once tariffs are levied, a rebound is almost a certainty. Even with tariffs levied on Canadian oil, it may still prove to be cheaper to continue importing oil from Canada rather than paying to import from the Middle East.

NRG Energy: Sticking to Domestic Energy   

For investors that want to stay away from import tariffs altogether, NRG Energy Inc. NYSE: NRG is a major independent power producer in the United States, generating 23 gigawatts (GW) and operating primarily in deregulated markets.

Their rates are market-based and are determined by supply and demand rather than being regulated as a single major utility in an area. 

The company is enjoying a demand surge thanks to the AI and data center boom. This has allowed them to lock in major power purchase agreements (PPAs) as power-hungry campuses race to secure enough power, even locking in nuclear power agreements as illustrated by Constellation Energy Co. NASDAQ: CEG 20-year PPA with Microsoft Co. NASDAQ: MSFT in 2024.

Can NRG Maintain Its Momentum? Analysts Eye Continued Upside

The company reaffirmed its 2025 guidance, forecasting an adjusted EPS of $7.25 and adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) of $3.85 billion.

The company posted record adjusted EBITDA of $3.8 billion in 2024, up $470 million YoY. NRG shares are trading up 17.17% YTD and pay a 1.66% dividend yield as of Feb 28, 2025.

Strong cash flow generation and disciplined capital allocation continue to support shareholder returns.

Management remains confident in delivering on its long-term financial targets, with a focus on operational efficiency and strategic growth initiatives.