We witnessed a remarkable rotation from growth to value on November 2, with battered energy stocks like Suncor Energy (TSX:SU)(NYSE:SU), finally picking up traction after months of extreme negative momentum. Shares of Suncor bounced 3.5% on the day alongside the ailing energy sector on news that Russia was looking to discuss the possibility of delaying the OPEC+ production increase.
Suncor stock looks like a timely pound-the-table buy in my books
Of late, I’ve been pounding the table on Suncor stock at around $15, as the name was touching down with a strong support level, which I thought would hold up going into the U.S. presidential election. Combined with a nearly 30% discount to book value and the company of investment legend Warren Buffett, Suncor looked to have one of the better risk/reward trade-offs on the TSX Index, despite profound industry headwinds and a lack of meaningful catalysts to get excited about.
With a Joe Biden presidential victory likely baked in here, I think a surprise Trump victory could allow battered energy stocks like Suncor to reverse their momentum. Even if Joe Biden takes the oval office as investors expect, Suncor and many of its peers still look oversold and overdue for a technical bounce after months of excessive pressure.
Suncor’s latest quarter wasn’t all that bad!
Suncor had a tough third quarter, as expected. But the company still managed to generate nearly $1.2 billion in funds from operations — a country mile above the $488 million posted in the quarter prior. Cash flows for the quarter exceeded that of consensus expectations thanks in part to upped upstream pricing.
Fellow Fool Karen Thomas also thinks that it’s time to load up on Suncor stock following its redemption quarter, and I think she’s right on the money.
“In the third quarter, Suncor is redeeming itself.” wrote Karen. “The outlook today is promising, as Suncor focuses on what it does best. Cash from operations increased 25% to $594 million in Suncor’s refining and marketing segment, which represented 51% of total cash flow. It’s a far cry from the $885 million in Q3 of 2019, but sequentially, this is a strong result. Overall, cash flow from operations increased 137% sequentially.”
Karen draws much emphasis on sequential improvements in the third quarter. While Suncor remains a country mile away from where it was before the pandemic struck, I think the company is well equipped to meet its $2 billion increment funds from operations target by 2025.
Management is playing the terrible hand it’s been dealt to the best of its ability. With a ridiculously strong balance sheet to weather another storm of COVID cases, Suncor is a dividend stock that you can feel confident holding in your TFSA.
Foolish takeaway on Suncor stock
Sure, the worsening hailstorm in the oil patch and extremely negative sentiment surrounding fossil fuel firms make it tough to go against the grain with an energy play like Suncor.
Still, there’s no denying the firm’s robust integrated operations and the massive discount to book value that still exists today. Even without a sustained uptick in oil prices, I think Suncor is unreasonably cheap here and would continue to urge investors to stand by the name alongside Warren Buffett.
