The oil and gas sector is one I generally have avoided in recent years. This is due mainly to long term secular headwinds I foresee getting stronger over time. The rise of ESG-focused investing has led to marked capital outflows from this sector. I do not believe this reality will change, particularly as the world continues to invest in electrification and clean/renewable energy sources. That said, a company I think provides investors in Canada and abroad with an interesting trade at this level is Suncor Inc. (TSX:SU)(NYSE:SU).
Suncor is the Cadillac of investments in the Canadian oil patch and has been for years due to a few factors. The company has a relatively low cost of production. Suncor has also been innovative in its adoption of new technologies to extract oil. Further, the vast majority of the company’s capital expenditure budget for its smaller projects has already been spent. These factors allow Suncor to earn above industry average cash flows over time and thereby adds stability even at these rock bottom commodity prices we’re seeing now.
Ona purely fundamental value basis, the argument could certainly be made that Suncor is cheap. If you’re looking for a trade, banking on a continued upward rally in oil prices, Suncor is a great way to play this sector. If you’re a longer-term investor, however, I’d recommend staying on the sidelines right now. Other more attractive opportunities exist in Canada, globally and in other sectors.
Invest wisely, my friends.
