3 Reasons to Buy Suncor in 2014

Many of the problems that have plagued the industry are starting to be fixed.

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The Motley Fool

Earlier this month Suncor (TSX:SU)(NYSE:SU) posted another round of impressive earnings beating the street’s expectations on several operating metrics and hiking its dividend a hearty 15%. And while the company’s share price has lagged the rest of the energy industry over the past half decade, several catalysts could reignite the stock in the upcoming year. Here are three reasons to consider adding Suncor to your portfolio.

1. The smart money is moving in

It never hurts to peak over the shoulder of the world’s greatest investor. Last summer SEC filings revealed that Warren Buffett had accumulated 17.8 million shares in Suncor in his first Canadian investment ever. It’s a classic move by Buffett venturing into an industry that is unloved and therefore undervalued.

More smart money is also moving into the company. Last quarter, SEC filings revealed that billionaire hedge fund manager George Soros had accumulated a $56 million stake in the oil behemoth. Other legendary investors including Julian Robertson, Steven Cohen, and Ray Dalio also initiated or increased their position in the company last quarter.

2. Good outlook for the oil sands

Thanks to a shortage of takeaway capacity out of Alberta, the oil sands were relegated to the investment sidelines for much of 2012 and 2013. However, the New Year is looking bright for the industry.

Enbridge (TSX:ENB, NYSE:ENB), which is responsible for exporting two-thirds of Western Canadian crude oil to the United States, has been quietly expanding its pipeline capacity. Some of the company’s major initiatives include twinning the Seaway and Spearhead pipelines, eliminating bottlenecks in the Chicago area, and reversing its Line 9 route. Enbridge projects that these projects will add an additional million barrels per day, or bpd, of shipping capacity.

There are other routes out as well. TransCanada expects to receive approval for both its Energy East and Keystone XL pipeline. If approved, these proposals could add an additional 1.9 million bpd of takeaway capacity by 2018. Additional investment in crude by rail will also aviate pipeline constraints over the short term.

And while new routes out of Alberta are beginning to emerge, the demand for heavy oil is surging. This spring, BP’s Whiting Oil refinery is expected to come online. This is expected to add over 300,000 bpd of heavy oil — that’s a lot of demand. All of this could put a big bid underneath heavy oil prices and boost Suncor’s top line.

3. Shareholder-focused management team

Chief Executive Steve Williams has led a quiet revolution at Suncor. Rather than focus on growth for the sake of growth, Williams has abandoned his predecessors’ growth targets, scrapped expensive expansion projects, and sold off low returning assets.

Today, Williams is looking for more cost-effective growth avenues. Over the next three to five years he plans to add 100,000 bpd of production through de-bottlenecking initiatives — industry slang for working the kinks out of operations. This type of investment provides nice returns with less risk than traditional ventures.

This has freed up an enormous amount of capital at Suncor, much of which has been returned to shareholders. Since 2011 the company has doubled the size of its dividend and bought back 11% of its outstanding shares. Expect another round of share buybacks and dividend hikes in 2014, which should provide a catalyst for the stock.

Foolish bottom line

The Albertan oil sands have been relegated to the investment back burner for the past five years. However, many of the problems that have plagued the industry are starting to be fixed. And that should put the entire industry back on your investment radar screen in 2014.

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 Robert Baillieul has no positions in any of the stocks mentioned in this article.

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