Is Now the Right Time to Bet on an Energy Turnaround?

You should be greedy when others are fearful. But when looking at companies like Suncor Energy Inc. (TSX:SU)(NYSE:SU), there just isn’t enough fear in Canada’s energy patch.

| More on:
The Motley Fool

One of Warren Buffett’s most-cited investing quotes says you should “Be greedy when others are fearful and be fearful when others are greedy.” In other words, stock markets tend to overreact to good news as well as bad news. And if you’re able to see past the short-term biases of others, you will outperform.

Here in Canada, this quote makes me think of the energy sector. After all, the price of oil has plummeted (despite a recent rebound), as have the stock prices of oil producers.

But just how much fear is there in Canada’s energy sector? The answer is not as much as we may think. Below we take a look.

Different views across the border

According to The Globe and Mail, Canadians are generally more optimistic of the energy sector than Americans are. To be more specific, the “short interest” (which represents the percentage of a company’s shares sold short) of Canadian energy companies is 3.1%. This is actually down from June of last year, when that number was 3.5%. South of the border, this figure has increased from almost 4% to nearly 6% over the same time period.

This optimism is reflected in Canadian energy stock prices. Take Suncor Energy Inc. (TSX:SU)(NYSE:SU) as an example. The company’s shares have actually increased by 7% over the past year, even though oil prices are down by about half.

Canada’s optimism is also reflected by these energy companies’ actions. Again, Suncor offers a perfect example. The company is surging ahead with the $13.5 billion Fort Hills oil sands mega-project, even though far higher oil prices are needed to justify the investment. Why is it doing this? Well, CFO Alister Cowan has said he sees oil prices rising to “US$90 in three to four years’ time”.

There are other examples. Manulife Financial Corp. CEO Donald Guloien has said the company is “trying to back up the truck to buy more oil and gas.” The CEO of the Canada Pension Plan Investment Board has expressed similar optimism. And David Mazza, head of ETF research at State Street Corp., recently told BNN that “There definitely seems to be evidence of investors seeking to bottom-fish this market and pre-position for 2015. Some investors we’ve spoken with don’t believe the negative picture on energy that’s become consensus.”

Beware the other big bias

In investing, sometimes it’s appropriate to sell a stock at a loss. Unfortunately, it’s a very difficult thing to do psychologically. As a result, too many investors hang on to declining stocks as the fundamentals worsen. Consequently, stock prices sometimes don’t fall as far as they should.

And this may very well be happening in the Canadian energy sector. So if you’re looking to be contrarian, and outsmart everyone else, now might be the time to be fearful.

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 Benjamin Sinclair has no position in any stocks mentioned.

More on Energy Stocks

Oil pumps against sunset
Energy Stocks

Suncor Stock: How Low Could it Go in 2023?

Suncor (TSX:SU) is up on the back of a bounce in oil prices but remains out of favour. Can new…

Read more »

Nuclear power station cooling tower
Energy Stocks

Why Canada Is Investing in Nuclear Power and You Should, Too [PREMIUM ANALYSIS]

Canadian companies are poised to become the global partner of choice for new nuclear technologies.

Read more »

energy industry
Energy Stocks

A TSX Dividend Giant I’d Buy Over Suncor Stock Right Now

Here's why Canadian Natural Resources stock is a much better bet compared to Suncor stock in March 2023.

Read more »

stock research, analyze data
Energy Stocks

Better Buy in April 2023: Bank Stocks or Energy Stocks?

Bank stocks and energy stocks are some of the most sought-after assets, but which is the better buy heading into…

Read more »

grow dividends
Energy Stocks

TSX Energy Index Down 6.6%: How to Take Advantage of the Sell-Off

Investors can focus on generating passive income from three high-yield energy stocks while waiting for oil demand and prices to…

Read more »

Man data analyze
Dividend Stocks

Got $5,000? Buy These 2 Stocks and Hold Until Retirement

If you have $5,000 to invest, here are two TSX stocks you can buy and hold as part of your…

Read more »

Oil pumps against sunset
Energy Stocks

Better Buy: Suncor Stock or Enbridge?

Energy stocks are under pressure. Is Suncor or Enbridge now oversold?

Read more »

Increasing yield
Energy Stocks

Buy the Dip: 1 Blue-Chip Energy Stock With a Rising Dividend Yield

Suncor Energy (TSX:SU) stock is approaching deep-value territory, making it a top pick for Canadian value and income investors.

Read more »