Is Warren Buffett About to Sell His Stake in Suncor Energy Inc.?

Warren Buffett famously took a position in Suncor Energy Inc. (TSX:SU)(NYSE:SU) about 16 months ago, but will he sell his stake now that oil has slumped?

| More on:
The Motley Fool

It was about 16 months ago that Warren Buffett bought nearly 18 million shares in Canadian oil producer Suncor Energy Inc. (TSX: SU)(NYSE: SU) through Berkshire Hathaway. Buffett paid in the low $30s apiece for his initial stake in Suncor Energy, which is now trading at almost $39. This is a decent rise for a stock that is currently under pressure from slumping oil prices; will this push Buffett to sell off some or all of his holding in Suncor Energy?

Buffett has already adjusted Berkshire Hathaway’s position in Suncor Energy a few times. Last December he sold about 5 million shares for a decent profit, and then increased his position in Q2 2014. Berkshire Hathaway current holds over 16 million Suncor Energy shares.

Canadian vs U.S. oil production

Buffett’s initial stake in Suncor was cheered by Canadian energy sector participants because the sector was in the midst of a few years of relative underperformance. Canadian energy companies were very recently thought of as one of the most promising investment opportunities, but things have taken a bit of a turn since 2008 when U.S. shale production increased, adding new competition.

In many cases investors sold their positions in Canadian energy companies and instead bought U.S. producers, who were undergoing more rapid growth due to their advantages against the Canadian competition – namely lower production costs and better transportation infrastructure.

The advantages American companies had over Canadian companies still exist to some point, but the climate is rapidly changing. In Canada, oil production costs are declining thanks to technological advances while the infrastructure to transport oil is also advancing. Many analysts now see American oil companies as the best investment over the short term, but over the longer term Canadian companies will shine.

The sentiment continues to spread that the U.S. shale boom will play out sooner than previously expected. Now that oil production has been ongoing in the U.S. for a few years, it is clear that many U.S. oil wells only have a year of solid production before declines set in. These declines increase year after year. For this reason there are estimates that the shale boom could be a bust by the time we move into the next decade. In Canada, in contrast, the oil reserves have a longer life and low decline risk.

What’s Buffett’s strategy?

Many have tried, but none have been completely successful at mirroring Warren Buffett’s strategies. Buffett is by no means secretive when it comes to his investing strategies; he looks for companies that are undervalued over the long term. This clearly makes sense when it comes to Suncor Energy.

At the time Buffett bought Suncor, it was underperforming its American counterparts. Suncor, however, is a great long-term play in the Canadian oil sands thanks to its ownership of a large amount of existing production and the fact that it produces and refines its own oil.

We can’t be certain if Warren Buffett will hold his position in Suncor Energy, but the argument that Suncor enrgy is an undervalued longer-term play certainly is in line with the famed investor’s money-making strategies.

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. The Motley Fool owns shares of Berkshire Hathaway.

More on Energy Stocks

bulb idea thinking
Energy Stocks

This Stock Is Miles Ahead of Its Industry: Is It a Buy Now?

This stock has proven to be well worth the investment, especially at a time with increasing demand for clean energy…

Read more »

Oil pumps against sunset
Energy Stocks

Is Suncor Energy Stock a Buy in 2024? 

Let's dive into whether Suncor Energy (TSX:SU) is a stock that's worth buying in this current environment or if investors…

Read more »

oil tank at night
Energy Stocks

Is CNQ a Buy Before its Upcoming Stock Split?

CNQ stock is a high-dividend TSX energy giant with a growing dividend yield. Is CNQ stock a good buy right…

Read more »

Solar panels and windmills
Energy Stocks

How Brookfield Renewable Stock Gained 40% in a Month

Brookfield Renewable stock (TSX:BEP.UN) surged in share price from a landmark deal and strong earnings, leading to a 40% jump.

Read more »

analyze data
Energy Stocks

Check Out This Soaring Stock, up 469% in 5 Years, With More Gains Likely to Come

If there is perhaps one growth stock that's just taken over in the last five years, it's this monster of…

Read more »

gas station, car, and 24-hour store
Energy Stocks

Is it Too Late to Buy Suncor Stock?

Suncor Energy stock has rallied big in the last year, but expect it to move higher as efficiencies keep rolling…

Read more »

Oil pipes in an oil field
Energy Stocks

TSX Energy Sector: Best Stocks to Buy in May 2024

Energy stocks like Suncor are generating massive amounts of cash flows and paying out significant dividends.

Read more »

Man holding magnifying glass over a document
Energy Stocks

Bargain Hunters: Is it Too Late to Buy Enbridge Stock?

Enbridge is up about 10% in recent weeks. Are more gains on the way?

Read more »