I wasn’t going to make a post about Suncor for a couple weeks, but with an 8% drop today I feel the company is worth looking at right now. As I mentioned earlier today in my analysis of Precision Drilling, I’m bullish on the energy sector in general. On a percentage basis, I’m more excited about natural gas than crude, but I’m also building my positions in oil companies on weakness like we saw today.


Suncor has a few major things going for it right now. First, its acquisition of Petro-Canada (which looks about as secure as a pending merger ever can) will improve Suncor’s balance sheet (which is currently loaded with debt) and give management a chance to turn around a wide range of quality assets which never seemed to perform well under Petro-Canada. In addition, Suncor’s major assets (oil sands projects) don’t exactly produce the cheapest oil on the planet. While this would appear to be a negative attribute, it means there is huge upside profit potential for these assets if crude makes it back into triple digits. The Suncor/Petro-Canada deal is a stock swap, so there aren’t any financing issues. Acquiring Petro-Canada also gives Suncor some diversification via assets in the oil refining and retail sectors.

Furthermore, Suncor’s assets are located in Canada and you can’t get much more politically stable than the Great White North. Given the current instability in Iran and Chavez’s continued lunacy in Venezuela, “friendly oil” will continue to be a popular choice, although the environmental impact of the oil sands isn’t exactly minimal. The stock is up nearly 100% off its lows from early March, but still off more than 60% from its high last year. Suncor’s shares are definitely volatile, so owning them is not always the most comfortable ride. However, if you’re at all bullish on the long term prospects of crude oil, this company should be included in your portfolio. I do own a position in Suncor and I’ll probably buy some more if it drops again tomorrow.

The Stock Guy’s Official Ranking: 9 out of 10