Suncor Stock: Risks and Rewards if You Buy Today

Suncor took a beating last year, as oil prices crashed and demand plunged for jet fuel and gasoline. Is Suncor stock now a buy or should you wait?

| More on:

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn more

Suncor Energy (TSX:SU)(NYSE:SU) trades at a huge discount to its pre-pandemic levels. Investors searching for a recovery play wonder if this is a good time to buy the undervalued stock.

Oil market impact on Suncor stock

WTI rallied from below US$40 per barrel last fall to as high as US$66 in March. At the time of writing, WTI is US$62. The size of the rebound and its resilience caught some analysts by surprise. The consensus outlook for oil coming into 2021 was for an average price of around US$50 for the year.

What happened?

OPEC+ decided to keep its supply cuts largely in place, and Saudi Arabia gave the market an extra boost with unilateral reductions of one million barrels per day in March. The group of oil-producing nations plus Russia is expected to increase supply slightly in May, but the market thinks the rapid drawdown in global supplies will keep the market tight in the coming months.

Risks to the rebound include the new waves of COVID-19 sweeping across globe, especially in India and Latin America. This could slow demand growth in the near term and potentially provide a headwind to higher oil prices. That being said, several analysts still expect oil to hit US$75 per barrel by the end of the year.

Suncor’s production assets represent the largest part of its revenue stream, so another 20% upside in the oil market could drive the share price much higher. Suncor stock trades near $26 per share at the time of writing. It was above $40 in early 2020 when oil traded lower than its current price.

Fuel demand impact on Suncor

Suncor’s other business units include four large refineries and about 1,500 Petro-Canada retail locations. The new COVID-19 wave hitting much of the world, including Canada, means international travel restrictions could remain in place through the summer months. This would delay the anticipated recovery in demand for the jet fuel made by the refineries.

In addition, Canadian office workers might not start commuting again until the fall or even the beginning of 2022. The summer driving season could also be a dud if interprovincial quarantine and travel restrictions remain in place.

Another risk to the refining business is the potential shutdown of the Line 5 pipeline, which carries oil through Michigan under the connection point of Lake Huron and Lake Michigan and down to refineries in Sarnia, Ontario. Michigan’s governor wants the pipeline to stop operating by May 13. Suncor has said it is making arrangements to supply the refinery in the event of a shutdown. A short disruption would likely have limited impact, but a permanent closure might be a different situation.

Is Suncor stock a buy?

Fuel demand should bounce back by the end of the year and could really take off in 2022. At the same time, there is a chance oil could move above US$70 per barrel and stay elevated for the next few years. If that’s how things are destined to pan out, Suncor stock appears undervalued right now and deserves to be on your buy list.

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 Andrew Walker has no position in any stock mentioned.

More on Energy Stocks

energy oil gas
Dividend Stocks

2 High-Yield Energy Stocks to Buy as Recession Approaches

Energy stocks such as TC Energy and Canadian Natural Resources allow investors to generate income even in recessionary times.

Read more »

Dividend Stocks

Passive Income Generator: 1 Dividend Stock Yielding 6.16%

A high-yield energy stock that pays monthly dividends is a reliable passive income generator for investors.

Read more »

oil and natural gas
Energy Stocks

Why Suncor Energy (TSX:SU) Fell 8% Last Week

Suncor Energy stock fell 8% last week. Is it still a good buy?

Read more »

Oil pumps against sunset
Energy Stocks

1 Canadian Oil Stock (With Hot Monthly Dividends) to Buy Now and Hold Forever

This top Canadian oil and gas stock could be a great source of reliable monthly passive income.

Read more »

Payday ringed on a calendar
Energy Stocks

3 Incredibly Cheap Canadian Stocks to Buy for Monthly Dividends

Companies such as Savaria and Pembina Pipeline pay monthly dividends, making the stocks attractive to income-seeking investors.

Read more »

canadian energy oil
Energy Stocks

Why Oil Prices Crashed 9.5% Last Week

Oil stocks like Suncor Energy (TSX:SU)(NYSE:SU) crashed 6% last week. Are they good buys on the dip?

Read more »

Going against the grain
Energy Stocks

RRSP Investors: 1 Top Contrarian Stock to Buy Now

Here's why this top Canadian energy stock with a high dividend yield looks undervalued and good to buy now for…

Read more »

Business man on stock market financial trade indicator background.
Energy Stocks

Market Volatility: 2 Value Stocks to Buy Right Now

The market volatility does not look like it will let up any time soon, but these two stocks are too…

Read more »