Pick Up Suncor Energy While It’s Below $44
Suncor Energy (NYSE:SU) is a Canadian energy company that has about a $67 billion market cap. It’s not huge, but it’s sizable.
Its focus is mainly on the Athabasca tar sands in the Alberta province of Canada. It also has exploration and production (E&P) operations off the east coast of Canada as well as in England, Norway, Libya and Syria.
In the past 12 months SU stock is up more than 40%. But year to date, the stock has slowed, only managing about 13%. Now, that’s still better than the major averages, and it’s also delivering a 2.7% dividend that surpasses the average dividend of the S&P 500.
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The fact is, SU is in a very good position now within the energy patch but it isn’t priced at a premium due to some production issues it has had to deal with in 2018.
Bumps in the Road for SU Stock
One of the most recent happened in June when one of its tar sands processing plants (cokers) lost power.
That may seem like a simple thing to come back from, but it’s not like simply flipping the circuit breaker back on and everything restarting. It takes a long time to get the processors back online, since transitioning tar sands into oil is a complex process.
If, as in this case, there are tar sands caught in the middle of the process, you can’t just pick up where you left off. The sands have to be removed, the equipment cleaned and everything sorted before the cokers can be brought back online. For example, the power went out in June and SU is hoping to have both cokers back up and running at full capacity in mid-August.
Right now, SU stock is in a holding pattern to see if this plan works out.
While that plays out, another development is the rise in oil prices. Tar sands are expensive to process and ship, so they’re not worth producing in large quantities if oil prices are too low.
At $73 a barrel and likely rising, output should be increasing for the rest of the year at least.
And rising prices are also good for SU’s E&P division as well. Talk around the energy patch is, prices for oil are high because low prices and lack of demand forced the E&P sector to the sidelines until inventories were reduced.
Now, demand is growing and E&P isn’t keeping up with growing demand.
SU’s Q1 numbers were solid but its Q2 issues have slowed its rise a bit. But given the trends in place that augur long-term energy demand, SU is in a very good position to renew its solid growth for many quarters to come.
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