Suncor Energy Inc. (USA) (SU), one of the world’s leaders in reserve life for oil, is returning 5% of its stock price back to investors each year, and with Warren Buffett’s recent endorsement is geared up to be a solid play, says Sandy Mehta, Principal and CIO of Value Investment Principals Ltd.
“Suncor is Canada’s largest market cap energy stock. This is a $50 billion market cap company. They’re one of the leaders in the entire world in reserve life for oil; they have 60 years of oil reserves, and they have 80 years of gas reserves. What you see is there is a paradox — that oil prices are near their three-year high, but a stock like Suncor is closer to its three-year low,” Mehta said.
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Though Mehta has been recommending SU since last year, Warren Buffett’s recent $5 billion stake in the company has brought new attention to the stock, Mehta says. Additionally, the company is returning 5% of the stock price to investors each year through dividends and buybacks, setting up SU to be a solid play in the energy market.
“You have a company, again a clear industry leader, trading at a 10 p/e. If you look at the dividend yield plus buybacks, they’re returning 5% of their current stock price to investors every year. The price to book is 1.3 times. The EV to EBITDA is 4.4. We are quite bullish on oil prices longer term, and we think this is a good play. And again, the stock is near its three-year low, and when you have investors such as Warren Buffett coming in, I think that is just an endorsement of the idea,” Mehta said.
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