I'm Reiterating my Buy rating for Sunoco, Inc. (NYSE: SUN), first recommended on April 20, 2009 at a price of $26.58, but there are qualifiers, so close attention is warranted. If you bought SUN in April, you're up about 19%. Sunoco has been hurt by the high oil price/low gasoline demand condition pervasive in the giant U.S. market that's squeezed margins. Further, Sunoco's primarily sweet crude oil refining operation prevents it from capitalizing on larger-margin sour crude refining. However, the sweet focus has enabled SUN to produce larger amounts of higher-grade products.
Further, given a likely stabilization in U.S. gasoline demand later in 2010, and Sunoco's strong presence on the lucrative East Coast, the call is to remain committed to the shares.
Technically, Sunoco's stock finally moved above the key, 50-day moving average in late summer, but not much weight can be attached to it, due to the trend's infancy.
The First Call FY2009/FY2010 EPS estimates for SUN are 38 cents to $2.74.
In sum, an argument can be forwarded that Sunoco is on the comeback trail. Continued, sluggish U.S. gasoline consumption in 2010 amid an economic recovery could discredit that thesis quickly, however. Hence, a tight Sell/Stop Loss has been deployed: SUN has to show technical and fundamental improvement soon, or I'll kick it.
Stock Analysis: Sunoco Inc. is a moderate-risk stock. If you've already purchased the company's shares, hold them. If not, consider buying a 25% position in SUN now. Under any circumstance, don't buy more than 25% of your SUN position before December 2009. Sell/Stop Loss if you were to buy shares in this company: $18.
Disclosure: Lazzaro has no positions in stocks, but does own shares in two Pimco Bond Funds: PHDAX and PYMAX.
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