Suncor Energy Inc (SU.TO)

If you are going to enter new positions in the oil/gas industry, you want to make sure it has a pristine balance sheet. This one is fine, but he prefers Tourmaline (TOU-T) and PowerX (?). Both have very, very strong balance sheets. PowerX (?) has no debt, cash on the balance sheet and a fully funded exploration program for 2015. Tourmaline has raised equity very judicially over the years with a very, very strong balance sheet along with a strong exploration program for this year.

He was debating about having this as a Top Pick, but some of these energy stocks have moved so aggressively bottoming in January. This one bottomed in December. Had broken a significant down trend line and we are now within the period of seasonal strength for the broad energy sector. This is no different and tends to gain all the way through to May. You want to be more towards the refiners and stay away from the drillers. Try to get it on a pullback to about $36. Loves the stock.

It is really diversified. It is integrated. It is a really great holding. Likes it, but it will be volatile like the sector. If we test lows again, then it is time to get in, but it is overbought right now.

Suncor (SU-T) or Husky(HSE-T)? Over the long term within energy, you want to own the high-quality names. He likes this one with its vertical integration. They have one of the best refining and marketing businesses in Canada. However, there have been some problems with their oil sands projects. His choice would be neither. He prefers Imperial Oil (IMO-T) over the long-term, because by far they are the best operator with the highest returns.

(A Top Pick Jan 9/14. Up 3.16%.) This has withstood the downturn a lot better than most because it is vertically integrated. It has the refining, the retail end and, unlike an explorer, it knows where its reserves are.

How do you know when to get out of the short? He thinks this is a rally within a bear market for oil. It bounced off the bottom a while ago. He thinks there is a lot more ability for this stock to catch up on the downside. He would go long in a torquier, aggressive one to offset it. He would cover his short now.

Balance sheet is set up to withstand the low prices we have here. They have on-going capital expenditures to maintain production.

If you are a longer term investor it is a buy. They are integrated so not 100% into the production aspect of the sector. You are looking at a difficult 6 or 7 months, maybe less and that is a relatively short time to suffer. A very solid company with good assets and good management.

There is nothing wrong with this company. In all of the large caps, he would say this is the most defensive given their lack of leverage. Looking at their performance relative to oil over the last couple of months, oil is down 42% and this company is only down 7%. People who need or want some energy component in their portfolio, typically buy the large caps, but that is creating a situation of a large disconnect between the stock price and oil price. Because of this you have 2 years to wait. He would rather buy a company that is a little more out of favour with as good of a balance sheet and maybe a better hedging position. There are much better names to buy.

Suncor (SU-T) or Cenovus (CVE-T)? This has some higher cost production because they do mining operations. Mining operations tend to be higher cost over time because of the cost of creating a barrel, as well as the maintenance cost of the machines in use. Cenovus has oil underground and just has to pump it out. They are both good companies, but the growth in Cenovus has better assets with lower cost production going forward. The growth in this company is largely the Fort Hills project that is higher cost production. Cenovus pays a higher dividend, which he likes. This company will have better leverage to oil prices when they recover. (See Top Picks.)

Doesn’t think you would go too far wrong buying these at the current levels if you are going to own for a while, but you might get it a little lower. Markets do over correct. Don’t go in this for a short-term trade.

This company is emulating what is going on with Exxon (XOM-N), thinking about capital allocation, and doing it smartly. They have reduced shares outstanding at a very nice clip and have increased the dividend at a very nice clip. They figured out the magic touch of what made Exxon such a wonderful company by focusing on return of capital properly. They think 50 years plus on their capital budgeting. This is the type of company that you want to be in for the long term, if you are bullish on oil, which he is. They have 40+ years of oil reserves in the ground.

Oil prices could have some downside here in the next 3-6 months, so you need to be careful how you add to your holdings. If you agree with his long-term view that oil prices should be $80 plus, this is the premium oil sands operator in Canada. Of course if you have an oil price of $50, there is not going to be any more oil sands projects and, in fact, it will be a struggle to breakeven. However, this company’s cash costs are around $30-$40, so it is still making cash. Also, they have the refining and marketing segments, which are taking advantage of the low oil prices. Good balance sheet so they can take advantage of acquisitions. Dividend yield of 3.18%.

Short? This is not the one that he would Short because it is one of the better larger cap names. He is shorting Chevron (CVX-N) because they are free cash flow negative this year and into next. Suncor’s balance sheet is in relatively good shape. Doesn’t see a lot of upside in any of these names for a while, given that oil prices are going to be depressed.

Suncor (SU-T) or Canadian Natural Resources (CNQ-T)? Likes this, but he doesn’t own it. Of the 2, he would prefer CNQ. Keystone is probably going to go ahead, which will help CNQ. When natural gas recovers, and he thinks it will, CNQ has enormous exposure.