Should You Buy Suncor Stock Before Q1 Earnings?

Suncor (TSX:SU) stock is trading at an attractive valuation, making it an interesting bet right now.

| 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

Canadian oil giant Suncor Energy (TSX:SU)(NYSE:SU) is set to report its earnings for the first quarter of 2021 on May 3. The stock has taken a battering in 2020 and is still trading over 50% below its five-year high $55 it hit in October 2018.

However, the second quarter of 2021 could be the period when its fortune starts to change. The price of oil has consistently been going up since it went into negative territory last April. Crude oil is now trading at US$63.71. As the global economy reopens and starts to recover, oil prices should move higher. So should Suncor’s market cap.

Will oil hit US$80?

One of the world’s largest investment banks, Goldman Sachs, has predicted that oil could see its biggest ever surge in global demand and hit as much as US$80. A Reuters report quoted a Goldman Sachs note that said as the vaccine rollout in Europe gathers pace and people start traveling more, it will result in “the biggest jump in oil demand ever, a 5.2 million barrels per day (bpd) rise over the next six months.”

It has said that demand is going to be so huge that supply will struggle to match it. CN Wire also quoted Goldman Sachs saying, “We forecast a larger rebound in oil demand this summer than OPEC and the IEA, requiring an additional 2 mb/d increase in OPEC+ production from July to October.”

Suncor stock seems undervalued and trades at 1.2 times book value and 1.7 times sales per share. While a lot of investors feel that big oil and energy companies like Suncor are going to find the going tough, one investor doesn’t.

Warren Buffett’s Berkshire Hathaway held 13.8 million Suncor shares at the end of 2020. In fact, Suncor is the only Canadian company in Berkshire’s portfolio. Berkshire Hathaway’s Canadian portfolio has gained almost 25% in 2021. How’s that for a good bet?

One barrier in Suncor’s surge

India, the world’s third-largest consumer of oil, has been battling one of the worst second waves of the pandemic in the world. It has recorded over 300,000 cases a day for the last eight days (including April 30).

The Organization of the Petroleum Exporting Countries (OPEC+) has said that it is watching the situation unfold in India closely and will decide on oil production based on India’s condition. Large parts of the country went into a lockdown on the weekend, and OPEC+ has said that if the lockdowns continue to persist, it will cut down production. This means that oil prices will continue to move sideways delaying Suncor’s rise. However, smart investors can use this opportunity to load up on this stock.

The stock closed April 30 at $26.29. The company also has a forward dividend yield of 3.16%. Analysts have recommended a buy on the stock with an average target price of $32.68. That’s an upside of 22.5% from its closing price. An investment of $10,000 in Suncor today could see you walk away with $2,566 at the end of a year (stock increase plus dividends).

Suncor stock may gain pace if it offers better-than-expected guidance during the upcoming earnings call. In Q1, Bay Street expects Suncor to report sales of $8.51 billion and earnings of $0.32 per share. For 2021, its sales are forecast at $35.2 billion while earnings are estimated at $1.38 per share.

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.

The Motley Fool owns shares of and recommends Berkshire Hathaway (B shares) and recommends the following options: short January 2023 $200 puts on Berkshire Hathaway (B shares), short June 2021 $240 calls on Berkshire Hathaway (B shares), and long January 2023 $200 calls on Berkshire Hathaway (B shares). Fool contributor Aditya Raghunath has no position in any of the stocks mentioned.

More on Energy Stocks

A stock price graph showing declines
Energy Stocks

2 Cheap Canadian Stocks That Likely Won’t Be on Sale For Much Longer

These two Canadian stocks are close to returning to all-time highs. Don’t miss your chance to take advantage of these…

Read more »

canadian energy oil
Energy Stocks

3 Rising Energy Stocks to Buy as Oil Hits 6-Month Low

Three rising energy stocks are strong buys today as their upward momentum is likely to continue due to the tight…

Read more »

Retirement plan
Dividend Stocks

4 Stocks That Could Turn $100,000 Into $500,000 by the Time You Retire

Companies such as Brookfield Asset Management have the potential to consistently beat the broader markets and deliver stellar returns to…

Read more »

energy industry
Energy Stocks

Vermilion Energy (TSX:VET) Stock Set to Soar Higher After a Solid Q2 Show

Should you buy VET stock?

Read more »

Gas pipelines
Energy Stocks

Unpopular Opinion: Oil Stocks Are Still Good

Oil prices are coming down, but oil stocks like Suncor Energy (TSX:SU)(NYSE:SU) are still good.

Read more »

Super sized rock trucks take a load of platinum rich rock into the crusher.
Energy Stocks

3 Top Commodity Stocks for Passive Dividend Income

Commodity stocks like Cameco Corp (TSX:CCO)(NYSE:CCJ) offer dividend income.

Read more »

Group of industrial workers in a refinery - oil processing equipment and machinery
Energy Stocks

2 Oil Stocks Under $11 With 90-110% Gains So Far This Year

Two small-cap oil stocks with enormous gains year to date are likely to deliver far superior returns in 2022 versus…

Read more »

Group of industrial workers in a refinery - oil processing equipment and machinery
Energy Stocks

Suncor Energy (TSX:SU) Could Power Your Portfolio to New Highs

Suncor Energy (TSX:SU)(NYSE:SU) is a cheap stock that could unlock value for its longer-term shareholders.

Read more »