Why Suncor Energy Inc. Could Rise 40% in 2015

Want an investment with 40% upside potential in 2015? Then look no further than Suncor Energy Inc. (USA)(NYSE:SU).

| More on:
The Motley Fool

Suncor Energy Inc.’s (TSX: SU)(NYSE: SUstock took a big hit this year, declining 16% with the tumble in oil prices. Still, according to analyst estimates compiled by Capital IQ, the one-year target on the stock is $47.45, about 40% higher than the stock’s current price point. That is a very aggressive upside, and given the current state of the oil market, one that could be hard to believe. Still, the upside is a real possibility, here is why.

Operating costs

With all this chatter about how many oil producers are barely profitable at current oil prices, Suncor Energy is an exception. In the most recent quarter, Suncor Energy’s cash operating cost was $31.10 per barrel. For 2014 as a whole, Suncor’s operating costs should fall in the range of $31.50 to $34.50. This means that even with oil trading where is at today, the company can still turn a profit, and even if oil plunges further, with the most pessimistic forecasts calling for $45 a barrel minimum, Suncor Energy will be able to profit. Profitability is key to an appreciation in share value.

Financial position

Being able to turn a profit when low oil prices are low sets the stage for the company to see a stock value appreciation. But this would be a moot point if the company was already in a bad financial position. Suncor Energy is consistently generating free cash flow, and the company has the financial health to survive in a low oil price environment.

The company’s metrics are clear evidence of its sound financial position. For example, Suncor Energy has a low debt-to-equity ratio of 28.40, most competitors sit around 50. Having a low amount of debt during a challenging time is good for the company, and provides more support to the potential for the company’s stock value to advance next year.

Stock oversold?

Even though Suncor is in a strong financial position, the company’s stock has felt the pressure of low oil prices. The negative sentiment surrounding the sector has discounted it. While some of this discount is valid, I believe in the case of Suncor Energy the fall has been overdone. Due to the speculative nature of many oil investments, if oil falls further, the stock may first see some losses before it gains.

In the long run, oil will recover, and once the fear over the oil market subsides, Suncor Energy could see a dramatic upswing thanks to its low operating costs and strong financial position.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Leia Klingel has no position in any stocks mentioned.

More on Investing

Canadian Dollars
Stock Market

Where to Invest $5,000 in April 2024

Do you have some extra cash to spare? Here are five companies to invest $5,000 in next month.

Read more »

Plane on runway, aircraft
Stocks for Beginners

Up 53% From its 52-Week Low, Is Cargojet Stock Still a Buy?

Cargojet (TSX:CJT) stock is up a whopping 53%, nearing closer to 52-week highs from 52-week lows, so what's next for…

Read more »

Question marks in a pile
Bank Stocks

Should You Buy Canadian Western Bank for its 4.8% Dividend Yield?

Down 35% from all-time highs, Canadian Western Bank offers a tasty dividend yield of 4.8%. Is the TSX bank stock…

Read more »

Gold bars
Metals and Mining Stocks

Why Alamos Gold Jumped 7% on Wednesday

Alamos (TSX:AGI) stock and Argonaut Gold (TSX:AR) surged after the companies announced a friendly acquisition for $325 million.

Read more »

tsx today
Stock Market

TSX Today: Why Record-Breaking Rally Could Extend on Thursday, March 28

The main TSX index closed above the 22,000 level for the first time yesterday and remains on track to post…

Read more »

Nuclear power station cooling tower
Metals and Mining Stocks

If You’d Invested $1,000 in Cameco Stock 5 Years Ago, This Is How Much You’d Have Now

Cameco (TSX:CCO) stock still looks undervalued, despite a 258% rally. Can the uranium miner deliver more capital gains to shareholders?

Read more »

Businessman holding tablet and showing a growing virtual hologram of statistics, graph and chart with arrow up on dark background. Stock market. Business growth, planning and strategy concept
Dividend Stocks

TFSA Magic: Earn Enormous Passive Income That the CRA Can’t Touch

If you're seeking out passive income, with zero taxes involved, then get on board with a TFSA and this portfolio…

Read more »

potted green plant grows up in arrow shape
Stocks for Beginners

3 Growth Stocks I’m Buying in April

These three growth stocks are up in the last year, and that is likely to continue on as we keep…

Read more »