Suncor Energy Inc (SU.TO)

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.

(A Top Pick Jan 9/14. Down 1.74%.) Had looked pretty good in the summer, but not so good now. When you play with commodities, this is what you have to live with. He likes this over all the other oil companies in Canada because it is vertically integrated. It not only has production, but also has refining and retailing. There are no exploration risks. Yield of 3.14%, which is not only sustainable, but might have room to go up.

Energy space has been decimated, but this one has held up much better than some of the smaller and mid-cap energy players. If you feel you have to have some energy exposure, this company’s oil sand production has operating costs in the mid-$30 and does not have to spend capital to keep its current production rates growing. A very exceptionally strong balance sheet. Also, has midstream and downstream businesses.

Canadian Natural Resources (CNQ-T) or Suncor (SU-T)? He likes both, but his preference would be this one. Both are solid and have low cost of production and will be around. 3.49% dividend yield.