Suncor (TSX:SU) rallied 20% off the April low over the past two months. Investors who missed the bounce are wondering if SU stock is still undervalued and good to buy for a self-directed Tax-Free Savings Account (TFSA) or Registered Retirement Savings Plan (RRSP) focused on dividends and total returns.
Suncor stock price
Suncor trades near $53 per share at the time of writing. It traded in a range of $44 to $58 over the past 12 months, with several moves of more than 10% in both directions along the way. Nimble investors could have made some good money on the stock during this timeframe.
Volatility in oil prices is the main cause of the turbulence. West Texas Intermediate (WTI) oil traded above US$80 per barrel last year. It fell below US$60 in April on fears that tariffs and trade wars would drive the American and Chinese economies into a severe downturn.
Tensions in the Middle East then triggered a rally, sending WTI as high as $75 last week. At the time of writing, oil is back to US$65 per barrel on bets that Iran and Israel will work out an agreement. Concerns that Iran will block the Strait of Hormuz, through which roughly 20% of oil has to pass to get to international buyers, have also eased.
The volatile moves in recent days are a reminder to investors to be careful when making decisions based on geopolitical uncertainty, as risk premiums can appear and then evaporate in a matter of days.
On the demand and supply side of the equation, analysts broadly expect the oil market to be in a surplus position into 2026. Higher production from non-OPEC countries, including Canada and the United States, along with quota cheating by some OPEC members, is expected to combine with ongoing soft demand in China to put pressure on oil prices.
Suncor earnings
Suncor generated solid first-quarter (Q1) 2025 results, despite all the uncertainty in the oil market. Net earnings came in higher than the same period in 2024. Net debt fell by $2 billion and is now below the $8 billion target the company set for itself to start returning 100% of excess cash to shareholders through stock repurchases. Suncor also raised the dividend by 5% earlier this year.
The company’s three divisions all performed well in the first three months of 2025. Suncor is best known for its oil sands production, but it also has four refineries and operates a large network of Petro-Canada retail locations.
Production, throughput at the refineries, and refined product sales all hit record quarterly levels in Q1 2025. The performance reflects the progress Suncor has made over the past two years under its new CEO, as the company focused on reducing expenses and making operations more efficient.
The integrated business model helps offset margin reductions in the upstream segment when oil prices fall. Lower input costs can drive higher profits on refined products, and cheaper gasoline resulting from lower oil prices tends to result in more visits to gas stations, where people often buy high-margin extras in the stores.
Time to buy?
I wouldn’t back up the truck just yet. WTI oil could fall back to US$60 in the near term if there is a meaningful reduction in hostilities in the Middle East. That being said, any announcement of a concrete trade deal between the U.S. and China could give the market a boost, so we should brace for ongoing turbulence.
Oil bulls who already own Suncor should probably hold the position at this price and look to add on a dip. You get paid a decent 4.25% dividend yield right now, and the long-term prospects for the company should be positive, especially as Canada looks to increase pipeline capacity to sell Canadian oil to international buyers. New investors might want to wait. There could be a better entry point in the coming weeks.
