A significant surge in commodity prices has become a boon for energy sector stocks. Suncor Energy (TSX:SU)(NYSE:SU) could be an excellent pick for investors in the current market environment.
Oil prices have recently gained significant momentum in the market. Suncor is a stock with significant exposure to this commodity, allowing its investors to enjoy the benefits. Suncor went through a significant selloff frenzy, as oil demand waned amid the pandemic.
I will discuss why Suncor could be an excellent long-term pick for you to consider for your investment portfolio.
Oil prices have remained stable for a long time
Suncor is one of the largest Canadian oil producers, owing much of its revenues to its oil sands operations. It means that commodity prices have a major say in its cash flows. Investors who buy Suncor stock are betting on the hydrocarbon space. As renewable energy becomes more popular, the oil and gas segment has become a challenging space to invest in. But that does not mean you should avoid the oil and gas sector at all costs.
Oil prices have started to stabilize. Improved fundamentals for supply and demand are the most significant reasons for commodity prices to be stable where they are right now. While oil prices still tend to be volatile, the bull market might be able to sustain its momentum.
Suncor has a business model that allows it to weather volatile commodity prices. The company’s breakeven price per barrel of crude oil is around US$35 WTI. It means that there is a substantial safety margin built into Suncor stock today. Its integrated structure, massive scale, and operational efficiencies make it an ideal cash flow machine to own right now.
Suncor is trading for $29.07 share at writing, and it boasts a decent 2.89% dividend yield. The company’s operational structure makes it a stable dividend income stock that could be ideal to own in more volatile commodity price conditions.
Foolish takeaway
The ongoing vaccination, steady economic expansion, and revival in consumer demand have lit a spark that could continue a sustained run for the energy sector.
Suncor is an energy company with a business model that has been continuously improved by its management team over the years. The world-class integrated oil company owns and operates high-quality assets with relatively lower production costs.
It is impossible to predict whether oil prices will retain sustainability over the near or medium term. However, picking a stock like Suncor could be far better than choosing a more speculative and relatively unknown name in this industry.
It might be turning out to be a good year for energy stocks, especially after the Q1 2021 earnings report. Suncor could be an excellent buy for growth and even better as a stock you can hold for its dividends in the long run.
