Suncor (TSX:SU) caught a nice tailwind in the past six weeks on the back of rising oil prices. Investors who missed the surge are wondering if SU stock is still undervalued and good to buy for a self-directed Tax-Free Savings Account (TFSA) or Registered Retirement Savings Plan (RRSP) portfolio.
Oil market outlook
West Texas Intermediate oil trades near US$88 per barrel at the time of writing compared to less than US$70 in June. The latest spike to the upside is due to news that Saudi Arabia intends to extend its one million barrel per day supply cut through the end of the year.
In addition, oil traders have shifted their economic outlook. In the first half of this year, there was significant concern that interest rate hikes by the U.S. Federal Reserve and other central banks would cause a deep global recession. That could still occur if inflation remains above the 2% target and the U.S. Fed pushes rates higher or keeps them elevated for longer than anticipated.
At this point, however, economists broadly expect a short and mild recession if one occurs. That would provide ongoing support for higher fuel consumption and strong oil prices.
China is another major piece of the puzzle. The country is the planet’s largest consumer of oil. A weak Chinese economy this year contributed to the slump in oil prices. Traders might be betting that a major stimulus is on the way from the Chinese government to get the economy back on track.
The bulls appear to be in charge right now. This could quickly change on major economic or geopolitical news, so investors should anticipate ongoing volatility.
Suncor trades near $47 per share at the time of writing compared to less than $38 in June.
A good chunk of the increase is due to the jump in oil prices. However, investors with an eye for a bargain might be getting into the stock while it is still relatively out of favour compared to its TSX peers.
Suncor traded in the $43 range in early 2022 before the pandemic crash, so Suncor is barely above that level, while some of the other oil sands giants have enjoyed gains of at least 100%.
Suncor has struggled with safety issues, operational challenges, and even a cyber attack. A new chief executive officer took control early this year and is making moves to trim expenses and improve shareholder returns by refocusing on the core production, refining, and retail divisions that historically made Suncor a top pick in the energy patch.
Should you buy?
The easy money has likely already been made, but more upside is certainly possible if oil remains at the current level or extends the gains into 2024.
Investors with a bullish view on oil should put Suncor on their radar. If you buy now, you at least get paid a decent 4.4% yield to ride out any additional volatility and can look to add to the position on the next dip.
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* Returns as of 8/16/23
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The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. Fool contributor Andrew Walker has no position in any stock mentioned.