SU.TO stock: WARNING: Suncor Energy (TSX:SU) Stock Could Reach $10

 Here is the article. 

I just bought 700 shares of Suncor stock. My average cost is $15.00 dollars. I should not gamble too much. I am planning to hold for long term since I analyze Suncor is at the bottom. But it is not, another 30% to drop before 4th quarter financial result. 

The year 2020 is proving to be terrible for Suncor Energy investors, as its stock has tanked by about 65% so far. The stock has underperformed the broader market as well as most of its peers.

The S&P/TSX Composite Index is currently trading with about 8.2% year-to-date losses. The shares of other energy firms such as Whitecap Resources and Seven Generations Energy have slipped by 56% and 47%, respectively. During the same period, its other peer Tourmaline Oil has risen by 13%.

In Q3, Suncor Energy posted an adjusted net loss of $0.20 per share against a profit of $0.72 per share in the same quarter last year. Bay Street analysts were expecting the company to report a less steep loss of around $0.12 per share.

Notably, it was the sixth consecutive quarter when the company’s earnings missed analysts’ expectations and the third quarter in a row when its earnings fell on a year-over-year (YoY) basis.

In the quarter ended September 2020, Suncor’s revenue was at $6.5 billion — about 35% worse than $9.9 billion in Q3 2019. The revenue also missed Bay Street’s expectation of $7.2 billion.

Similarly, the company’s adjusted gross profit of $2.33 billion was about 64.1% worse than the $6.49 in the same quarter of the last year.

While Suncor Energy’s management expects its operating performance to improve in the fourth quarter, most analysts don’t see that happening. Analysts estimate Suncor Energy to post a $212 million loss in the fourth quarter, which would lead to a massive $2.1 billion losses for the full year 2020.

The stock could fall below $10

As of October 29, Suncor Energy stock is trading at $15.09 per share. It’s currently hovering right above the major support level around $14.20 — formed back in 2002. A violation of this support level could trigger a massive sell-off in the stock and take prices further down towards the next support level of $9.60.

On the macro side, a prolonged pandemic along with predictions of a major economic slowdown are some of the factors that could keep energy demand low — at least in the coming few quarters. Low energy demand would certainly make Suncor Energy’s financial recovery plan more challenging. These are some of the reasons why I believe Suncor Energy stock could be headed towards $10.

It would be wise for investors to keep a close eye on the $14.20 support level and exit Suncor Energy stock position if it falls below this level. Instead, you can invest in any of undervalued TSX stocks right now.

Follow up 

Oct. 20, 2023

I did not invest on long term. I sold all SU.TO position, and then moved on other stocks. 

SU.TO stock: Keep learning! I got 700 shares purchased and I like to invest long term

Here are highlights:

1. US $40/ barrel, Suncor loses money -> bring down cost to $35/ barrel 
2. Crude oil -> up to $40/ barrel, Suncor stock will go up to $22.00 dollar/ share
3. Canadian dollars/ US dollars
4. long term bull - price goes up, and then expect 5 year return 100% 

Suncor Energy (TSX:SU)(NYSE:SU) stock fell 5.4% on October 28, while energy stocks tumbled 3.9%. The TSX Composite Index fell 2.7%, as the COVID-19 resurgence tightened travel restrictions and dampened recovery in oil demand. WTI crude price fell to $35.9/barrel, its lowest level in nearly a month, raising an alarm of another market crash.

Suncor Energy’s risk/reward ratio

Suncor Energy, in its investor presentation, stated that it needs a WTI pricing of $35/barrel to meet its operating cost, capital expenditure, and dividend payments. And this is after the oil giant cut its dividend by 55%. If the WTI price doesn’t increase fast, Suncor might announce another dividend cut. Warren Buffett’s investment in Suncor raises hope that the stock will pay off in the next five years. But the first two years will be the toughest.

At $15, Suncor is trading at 47 times its next 12-month earnings per share. This doesn’t look like an attractive valuation for a company that is making losses. But that is the nature of a cyclical stock like Suncor. If oil prices rebound, the company will move from millions of dollars of losses to profits. In the first nine months of 2020, Suncor’s net loss widened to $4.15 billion against a profit of $5.23 billion in the same period last year.

Before considering buying Suncor stock, look at these three things.

WTI crude oil price volatility 

The oil price governs every single aspect of an oil company. As an oil company can’t determine oil prices, it reduces costs and changes the product mix to boost profits. The pandemic reduced crude oil and crack spread benchmarks by more than 50% in the second quarter, when WTI crude oil was US$27.85/barrel. This spread benchmarks reduced by more than 25% in the third quarter when the WTI crude oil was US$40.95/barrel. The higher the spread, the lower the profit.

If the oil price falls below US$40/barrel, Suncor will lose money from selling oil. Hence, the company is reducing its operating expense by $1 billion, capital expenditures by $1.9 billion, and dividends by 55% to bring down its cost to $35/barrel. It is also increasing the mix of synthetic crude oil, which commands a higher price. But if the oil price falls to US$35, more dividends and cost cuts might be needed.

For taking this risk, Suncor will reward you with higher dividend yields. How? If Suncor cuts dividends, its stock price will fall significantly, thereby inflating its dividend yields. When the oil price surges to US$40/barrel or above, its stock price would surge to $22, representing an upside of 47%.

If you invest $500 in Suncor share now, you will get a reward of $230 when the oil price returns to US$40/barrel. And the oil price will rise as OPEC+ will adjust the supply to meet the demand dynamics. OPEC+ increased the oil price per barrel from -US$37 in April to US$43 in August.

Foreign exchange rates 

Suncor is benefitting from a weaker Canadian dollar, as it sells oil in U.S. dollars but incurs expenditure in Canadian dollars. It reported $290 million in unrealized foreign exchange gain in the third quarter, which reduced its net loss to $12 million.

However, this foreign exchange rate doesn’t bode well for Suncor when it comes to debt. It has 64% of its debt in U.S. dollars, which means it has to pay more Canadian dollars.

Suncor is a long-term bull 

Suncor has $9 billion in liquidity, which will help it sustain losses for another two years. It is using this time to reduce its cost and improve its operating efficiency. It plans to complete an interconnecting pipeline between its Oil Sands Base Plant and Syncrude in the fourth quarter. The pipeline will improve operating efficiency and generate $2 billion in free funds flow. When oil prices recover to more than $50 in the long term, Suncor will generate higher margins that it used to earn before the pandemic.

Suncor’s short-term risks can put your portfolio in red, but long-term rewards can more than double your money in five years. However, there are lower-risk stocks that are better positioned to fight the pandemic.

Follow up

Oct. 20, 2023

I sold my position of Suncor, and I did not keep my promise. Invest long term on Suncor stock. 

Oct. 27, 2023

Invest long term, do I keep my promise on investing on Suncor as a long term investor. 

How to put together all competing ideas and then work on finding the best one? 

Why did I choose to invest GRAY stock and did not invest on Suncor stock anymore? 

I only invested SUNCOR stock for less than one year. Why?

SU.TO: Time to get back in stock market to build Suncor stock positions

 Oct. 3, 2020

Introduction

It is so hard for me to discipline myself as an investor, stay consistent. I like to write down my analysis and thought process. 

My purchase and my loss starting from August 31

Here is youtube link. 

I recorded my thought process in youtube video first, recorded using video app called powerDirector. 

I got dividend on Oct. 2, 2020 through mint.app, around $120 dollar dividend on Sept. 2, 2020. It also reminded me to get back in the position of Suncor energy stock. 

I have to plan how to time the market and get back in the stock market on Suncor stock, should I purchase 500 shares once, or I should break into three sessions, each time I purchase around 150 shares. 

I need to think about long term. For example, if I consider for 4 years return, what is good time to invest on Suncor stock. Since I drive old used car, if I purchase a new car around $12,000 dollars, then I can pay it off in 4 years. I can relate to the new car case, then I can think about how to invest those and get some return. 

On Oct. 2, 2020, Suncor stock price went down the level of March 27, 2020, below $16.00 dollars, the price range is from $15.01 to $15.99 dollars. I do believe that I should get back in 200 shares a time, and invest a few times to catch lowest price. 

Follow up 

Oct. 8, 2020

On Oct. 8, 2020, SU.TO stock went up more than 6%, so many oil stocks went up over 5% as well. I did not purchase any shares after Oct. 2, 2020. 

I tried to stay away from gambling, and tried to work on Google phone screen. But of course I missed the chance to recover my loss over $7000 oil stock loss from August 31 to Oct. 2. I should take market risk seriously. I have to learn how hard it is to stay put, and hold those shares. 

Nov. 14, 2020

Su.TO went up over 20% last week. I did not catch the rebound. I need to look into the issue, and also stay positive and continue to do good equity research. 

Follow up

Sept. 20, 2023