The TSX is no longer knocking on record highs. It has moved in, put its feet on the coffee table, and started behaving as though 36,000 points was always perfectly normal.
Canada’s benchmark index closed at a record this month. It also completed its eighth consecutive quarterly gain in June, the longest winning streak in 30 years. Investors waiting for an engraved invitation from the market may feel slightly late.
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A higher market changes the job
Buying after a strong rally isn’t automatically reckless. Markets can continue climbing as earnings grow, interest-rate fears ease, and investors become willing to pay more for future profits. The uncomfortable part is that expectations rise with prices, leaving less room for a company that merely performs “fine.”
I’d therefore avoid chasing whichever gold miner or technology stock produced yesterday’s most exciting green number. The better candidate can generate cash, return some of it to shareholders, and increase per-share value even if the broader index takes a breather. That approach also makes the next stock market correction considerably less dramatic.
Consider SU
Suncor Energy (TSX: SU) offers that combination. It produces oil from the oil sands and offshore assets, then refines and sells fuel through its downstream operations and Petro-Canada network. This integrated structure gives it more protection than a pure producer because refining margins can help when crude pricing weakens.
The newest results show what that collection of assets can produce when operations and commodity markets cooperate. Second-quarter adjusted funds from operations (AFFO) reached a record-tying $5.3 billion, while free funds flow climbed to a record $4 billion. Rather than stuffing that cash into a corporate sofa cushion, management increased planned share repurchases to $500 million per month beginning in August.
Buybacks reduce the number of shares dividing future earnings and dividends. Assuming an $89.05 share price and approximately 1.18 billion shares, the new pace could retire about 67 million shares over 12 months if maintained. Fewer slices mean each remaining shareholder owns more of the pie, even if nobody bakes a larger one immediately.
| BUYBACK PERIOD | ILLUSTRATED SPENDING | SHARES REPURCHASED | ESTIMATED SHARE BASE REDUCTION |
|---|---|---|---|
| One month | $500 million | 5.6 million | 0.5% |
| Three months | $1.5 billion | 16.8 million | 1.4% |
| Six months | $3.0 billion | 33.7 million | 2.9% |
| One year | $6.0 billion | 67.4 million | 5.7% |
Considerations
Near $89, Suncor trades around 12 times trailing earnings. That looks reasonable beside many growth stocks, although it isn’t an obvious clearance-rack valuation after the shares’ strong advance. Investors are paying for better operations, record cash generation, and a much more enthusiastic repurchase program.
Oil remains the large, greasy risk in the room. Falling crude prices would reduce upstream cash flow, while weaker refining margins could remove the downstream cushion. Maintenance problems, carbon costs, and project execution can also interrupt even an impressive operating streak, so Suncor stock shouldn’t become an entire portfolio disguised as one of several Canadian energy stocks.
Bottom line
The TSX’s first move has already rewarded investors who simply stayed aboard. Its next leg may favour companies capable of growing earnings per share (EPS) rather than merely rising with the crowd. If Suncor stock keeps converting its operations into record cash and fewer outstanding shares, today’s buyers won’t need another effortless market rally to keep moving forward.
