The rebound in the TSX energy sector has driven up the share prices of producers, including Suncor (TSX:SU). Energy infrastructure stocks like Enbridge (TSX:ENB), remain out of favour. Investors are wondering if Suncor stock has more room to run and if Enbridge stock is now undervalued.
Suncor
Suncor jumped from $38 in July to a recent high of around $47, supported by a strong rebound in the price of oil.
At the time of writing, Suncor trades for close to $44.50. This is pretty close to where Suncor traded in early 2020 before the pandemic market crash. Suncor’s oil sands peers currently trade as much as 100% above their pre-pandemic prices, so Suncor has underperformed in the segment.
Operational issues, a battle with a major shareholder, and the unexpected 55% cut to the dividend in the early weeks of the pandemic all soured investors on Suncor. It appears the market is still sitting on the sidelines. This is despite the fact that the board has since raised the dividend to a record high and brought in a new chief executive officer to get the company back on track.
Suncor sold off its renewable energy assets in an effort to refocus on the core production, refining, and retail businesses. The integrated nature of the revenue stream was historically one reason investors considered Suncor to be a top pick in the Canadian oil sector. As airlines ramp up capacity to meet strong travel demand and commuters get called back to the office, fuel demand should remain strong in both the domestic and global markets.
Oil prices will ultimately determine where Suncor stock goes in the next few years. Energy bulls who see a sustained oil surge above US$100 per barrel on the horizon might want to add some Suncor to their portfolios on additional weakness. At the current share price, investors can get a 4.7% dividend yield.
Enbridge
Enbridge doesn’t produce oil or natural gas. The company simply moves fuel products from producers to storage sites, export facilities, refineries, or utilities and charges a fee for providing the service. As long as demand remains robust, the changes in the prices of the commodities have limited direct impact on Enbridge’s revenues.
Management is shifting growth investments away from the major pipeline projects and towards assets that should perform well in the coming years. Enbridge purchased an oil export terminal in Texas and is a partner in a liquified natural gas (LNG) export facility being built in British Columbia. In addition, Enbridge has expanded its solar and wind group and is set to become the largest natural gas utility operator in North America once it closes the recently announced US$14 billion purchase of three natural gas utilities in the United States.
Enbridge’s stock price is down 18% in 2023. The drop looks overdone, considering the anticipated revenue growth from the acquisitions and the $17 billion capital program. Investors who buy the dip can get a dividend yield of 8.1% today.
Is one a better buy?
Suncor could have more upside torque if the turnaround efforts succeed and oil prices head much higher, but the stock would also be more vulnerable to a plunge in the oil market. Enbridge arguably looks oversold right now, and the dividend should be safe. At the current price, I would probably make Enbridge the first pick today.
