Mounting tensions between Russia and Ukraine have weighed on equity markets, but Barclays thinks certain stocks could still do well. "As the guessing game continues on both fronts, near-term market direction is hard to call, and volatility is likely to remain elevated. But we think markets likely reflect a lot of uncertainty already, while risks on the Russia-Ukraine situation look fairly balanced to us," Barclays' analysts, led by Emmanuel Cau, said on Feb. 16. The bank said the energy market will bear the brunt of a conflict, with Russia supplying about 40% of Europe's gas needs. Germany has an even higher reliance on Russian gas, with 50% of its energy needs supplied by Russia , Cau highlighted. Read more: Conflict playbook: How investors can protect their portfolios if Russia were to invade Ukraine With Russia also a major supplier of oil to the European Union, alongside rising crude prices and limited spare capacity, the bank believes the oil market will remain tight with elevated prices in the absence of an imminent de-escalation of the conflict. Against this backdrop, Cau said he prefers exposure to the energy sector, given its historical outperformance during times of geopolitical tensions. The bank is also overweight on the industrials, automotive and leisure sectors. Stock picks The bank screened for stocks which it says are beneficiaries of high oil prices, with Cau noting that these stocks still look "attractively valued" despite the recent rally in crude price. Brent crude was trading around $93.79 a barrel on Monday and is up 20% over 2022 so far. Unsurprisingly, the bank's screen features several energy stocks, including Norway's Equinor , Luxembourg-based Tenaris , Italy's Eni , France's TotalEnergies , Spain's Repsol , Shell and BP . Within the materials space, the bank likes BHP , Anglo American , ArcelorMittal , Antofagasta and Rio Tinto . Also making the screen are several industrial stocks, such as Swedish engineering firm Sandvik , British industrial equipment rental firm Ashtead , Sweden's Atlas Copco and Schneider Electric . The bank also likes Renault , BMW and Stellantis within the automakers space.
Ukrainian troops patrol in the town of Novoluhanske, eastern Ukraine, on February 19, 2022.
Aris Messinis | AFP | Getty Images
Mounting tensions between Russia and Ukraine have weighed on equity markets, but Barclays thinks certain stocks could still do well.