Friday, September 25, 2020

SU.TO stock: Forget Suncor (TSX:SU): Buy This Cash-Rich Energy Stock Instead!

Here is the article. 

I will add some notes here, what I should learn from the article. 


It has been another challenging year for TSX energy stocks. Suncor Energy (TSX:SU)(NYSE:SU), one of Canada’s largest integrated oil producers and refiners, has had a particularly difficult year in 2020. Year-to-date its stock is down 60% and it is only trading 13% above its March crash lows. The company cut its dividend by 55% in May, and has failed to create any real stockholder returns since the pandemic.

Suncor will survive, but can it thrive?

Fortunately, Suncor can produce oil at a very low cost and has a fund flow from operations break even (covers enterprise operating costs, sustaining capital, and dividends) of only West Texas Intermediate (WTI) US$35/bbl. Combine its long life assets, its integrated operations, and its low cost of production and the company will undoubtedly survive this crisis. However, when investing, I don’t want to own companies that are just surviving. I want exposure to businesses that can prosper, even in difficult markets.

The reality is, Suncor’s stock and the entire oil sector is very cheap. Suncor trades at a 26% discount to book value. At some point, the world will likely recover and oil demand could return to a healthier level. At that time, the stock could have some attractive upside. Yet for me, at the moment, I would choose to keep my money on the sidelines.

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