Sell These Energy Giants When Opportunity Knocks

Warren Buffett bought Suncor Energy Inc. (TSX:SU)(NYSE:SU) fairly recently, but this is what you must know!

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Surely, you must have heard by now that Warren Buffett’s Berkshire Hathaway took a stake in Suncor Energy (TSX:SU)(NYSE:SU) late last year.

It’s awesome to get a vote of confidence from one of the greatest investors of all time, but be mindful that this isn’t the first time Mr. Buffett had taken a stake in Suncor.

He’d bought the stock in 2013 and got out of the position by 2016.

Suncor still offers great value. This graph further illustrates why Buffett took a bite at the levels he did in late 2018. Suncor’s a great trading stock — if you can catch it at a low and sell it at a high.

SU Chart

SU data by YCharts. The 10-year price action of Suncor Energy.

bought Suncor in January this year before the news that Berkshire bought the stock came out. I gobbled up shares simply because I saw fabulous value, as well as a secure dividend.

Last year, Suncor generated more than $10 billion of operating cash flow and more than $3.8 billion of free cash flow! So, it was no surprise to me at all that the company increased its quarterly dividend by a hefty amount of 16.7% to $0.42 per share last month.

Furthermore, Suncor is awarded a high S&P credit rating of A-. So, you can be reassured that its balance sheet is strong.

Suncor still offers marvelous upside. Thomson Reuters analysts have a mean 12-month target of $54 per share, which represents 20% near-term upside potential from $45 per share.

Meanwhile, you can get real cash from the dividends as you wait for the stock to tick higher. Suncor is yielding 4.14% as of writing.

Another top energy giant for a profitable trade

CNQ Chart

CNQ data by YCharts. The 10-year price action of Canadian Natural Resources.

A quick look at the graph above, and you can tell that Canadian Natural Resources (TSX:CNQ)(NYSE:CNQ) is a stock of similar nature to Suncor. The company is easily one of the top candidates in the Canadian oil patch for a profitable trade while getting a decent dividend.

The large-cap oil and gas producer just reported its fourth-quarter and full-year 2018 results on Thursday. Results were positive with the stock reacting by appreciating 3%.

In 2018, similar to Suncor, Canadian Natural Resources generated more than $10 billion of operating cash flow and about $4 billion of free cash flow.

Canadian Natural Resources didn’t disappoint by increasing its quarterly dividend at a double-digit growth rate of nearly 12% to $0.375 per share.

Additionally, the company is awarded a solid investment-grade S&P credit rating of BBB+. So, you can sleep with a peace of mind that Canadian Natural Resources’s balance sheet is intact.

Canadian Natural Resources still offers astounding upside. Reuters analysts have a mean 12-month target of $46.20 per share, which represents 25% near-term upside potential.

You also get a nice dividend while waiting for price appreciation. Canadian Natural Resources offers a yield of 4.14% as of writing.

Investor takeaway

The Foolish takeaway is that you must buy these stocks at lows and sell at highs to maximize returns. They’re not the best of buy-and-hold energy stocks.

Currently, both Suncor and Canadian Natural Resources still offer substantial upside potential. They also give back returns from a 4% yield in the meantime.

If anything, these stocks are solid buys right now and on any further dips.

Stay Hungry. Stay Foolish.

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 Kay Ng owns shares of Suncor Energy. The Motley Fool owns shares of Berkshire Hathaway (B shares).

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