I'm Reiterating my Buy rating for Suncor Enegy (NYSE: SU) first recommended on February 25, 2009 at a price of $18.35. Suncor's oil sands production increased 12% in Q1 or by 27,800 barrels per day, roughly in-line with expectations. Moreover, oil sands is the driver here, with the focus being Canada's Athabasca oil sands region: oil sands require a larger investment and hence a higher price, but the substantial sands resources of Canada will play a larger role in energy as the world's older, conventional oil fields continue to decline.
In March, Suncor announced plans to merge with PetroCanada, pending approvals, which will improve economies of scale, and yield reserves of about 7.5 billion barrels of oil equivalent; however, this stock review is strictly based on Suncor's fundamentals. The FY2009/FY2010 EPS estimates for SU are $1.38 to $2.59.
True, oil's down, and there's talk of a sub-$30 oil price in the fall, and that soon a gallon of gasoline will cost less than a cup of coffee. But how long do you think that's going to last?
Stock Analysis: Suncor is a moderate-risk stock. If you've already purchased the company's shares, hold them. If not, consider buying a 25% position in SU now; then buy another 25% in three months, if U.S. and global economic conditions don't worsen substantially. Under any circumstance, don't buy more than 50% of your SU position before October 2009. Sell/Stop Loss if you were to buy shares in this company: $12.
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Disclosure: Lazzaro has no positions in stocks, but does own shares in two Pimco Bond Funds: PHDAX and PYMAX.
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