Will Suncor’s Stock Price Soar in 2023?

Suncor continues to underperform its peers. Will the stock price surge this year?

| More on:
Investor wonders if it's safe to buy stocks now

Source: Getty Images

Suncor Energy (TSX:SU) continues to lag its peers after the big rebound in the share prices of oil stocks following the pandemic rout. Contrarian investors seeking decent dividends and attractive total returns are wondering if Suncor stock is now undervalued and poised to surge in 2023.

Oil market

West Texas Intermediate (WTI) oil is down recently and currently trades near US$74 per barrel. This is well below the 2022 high that saw the price of crude oil top US$120 but still a very profitable level for oil producers.

The second half of 2022 saw oil trend steadily lower with intermittent short and sometimes sharp rallies, as traders reacted to ongoing COVID-19 lockdowns in China and mixed messaging on the threats of a potential global economic recession in 2023 or 2024.

Additional volatility is expected, but some of the 2022 unknowns will get sorted out in short order. China has abandoned the zero-covid policy. Analysts broadly expect the reopening of the Chinese economy to drive as much as 50% of the global demand growth for oil in 2023.

At the same time, airlines continue to ramp up orders for new planes to meet rebounding travel demand and companies are increasingly calling workers back to the office. These developments will boost fuel demand considerably through 2023 and into 2024. On the commuting side, the demand for gasoline could top 2019 levels, even with hybrid work arrangements. People who are now required to be in the office for two or three days per week are more likely to drive than when they previously used public transport before the pandemic. Commuters are already complaining about having difficulty finding parking spots. In addition, the exodus to the suburbs that occurred over the past three years means more people will have to hit the highways to get to work.

On the supply side, the oil industry has limited ability or incentive to boost production. Cuts to capital programs in 2020 and 2021 reduced the potential for firms to increase output in the next few years. Pressures to meet net-zero emissions targets are going to restrict investment in new projects. Instead, firms are happy to spend enough to maintain production and return excess cash to shareholders.

With demand rising and limited scope for meaningful output increases there is a chance that oil could take another run at US$100 before the end of this year.

Is Suncor stock a buy?

Suncor trades for close to $44 per share at the time of writing. That’s pretty close to where the stock price sat before the pandemic. Many of its peers, however, are as much as 100% higher than their prices in early 2020.

Suncor is monetizing non-core assets and has reversed the dividend cut it made in the early days of the pandemic. In fact, the current distribution is at an all-time high and more gains should be on the way. Suncor’s integrated business model, which includes production, refining, and retail assets should serve the business well as fuel demand continues to recover.

Investors should expect a bumpy ride, but the stock appears attractive today if you are of the opinion that oil is indeed headed back to US$100 at some point in the next 12 months. At the current share price, Suncor offers a 4.7% dividend yield, so you get paid well to wait for the rebound.

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 has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. Fool contributor Andrew Walker has no position in any stock mentioned.

More on Investing

Target. Stand out from the crowd
Dividend Stocks

RRSP Pension: 2 Dividend Stocks to Buy on the Latest Dip

These high-yield TSX stocks look cheap right now for RRSP investors.

Read more »

bulb idea thinking

The Smartest TSX ETF to Buy With $1,000 Right Now

Forget the TSX 60 or the TSX Composite. I prefer the TSX Dividend Aristocrats.

Read more »

Canada Day fireworks over two Adirondack chairs on the wooden dock in Ontario, Canada

CPP Benefits Not Enough? This Top Dividend Stock Can Help Fund Your Retirement

Canadian retirees can look to supplement their CPP payout with quality dividend stocks such as Headwater Exploration.

Read more »

grow dividends
Stocks for Beginners

Why Cargojet Stock Is Surging Past 52-Week Highs

Cargojet (TSX:CJT) stock surged by 17% after a new deal was announced, with upgrades coming in as well for the…

Read more »

protect, safe, trust

It’s Time to Defend Your Wealth: 3 Top Stocks to Help Keep What’s Yours

For those looking to defend your wealth against what appear to be robust oncoming macro headwinds should consider these stocks.

Read more »

Retirees sip their morning coffee outside.
Dividend Stocks

Safe and Sound Stocks for Canadians: My Top 5 Choices

Five safe stocks to buy on a market pullback.

Read more »

Financial technology concept.

Couche-Tard Stock: Today Is a Huge Buying Opportunity

Alimentation Couche-Tard (TSX:ATD) stock looks like a steal after its latest unwarranted plunge into a correction again.

Read more »

A stock price graph showing growth over time
Metals and Mining Stocks

Why Cameco Stock Soared 23% This Year

Cameco stock continues to ride high on strong supply/demand fundamentals and growing momentum in the nuclear industry.

Read more »