Investors looking for value in today’s market have to search high and low to find what they’re looking for. Stocks are the most expensive they’ve every been by some metrics. Indeed, investing with a Warren Buffett-type methodology can be painful in times like these. When growth stocks outperform value like they have this past decade, investing with a value tilt can result in underperformance. Even worse, investors might be enticed by a “fear of missing out” and jump into stocks they might otherwise never have considered previously.
Buffett’s not only holding, he’s buying more
As I stated in a recent article, Buffett is sticking with Suncor right now. Not only that, over the past two years, the Oracle of Omaha has nearly doubled his investment in this stock.
Suncor has been a laggard of the market and hasn’t performed well over since the pandemic began. When one considers the fact this stock was trading around the $40 level for most of 2019, its current share price, which is around $23, means there’s a lot of value investors believe has been destroyed with this stock. However, it appears Buffett sees things differently and has stood by this Canadian energy name.
I think this is a best-in-class oil company with an asset portfolio that is unparalleled among its peers. The company has a 40-year reserve life in Alberta, providing investors with long-term durability and the ability to benefit from rising oil prices long term. If you believe, as I do (and apparently Buffett does as well), that a bull market in commodities is underway, now is the time to buy a stock like Suncor.
Suncor’s business model extremely attractive
In addition to the company’s impressive reserves, Suncor’s vertically integrated business model is attractive to long-term investors. Suncor has four downstream oil refineries as well as approximately 1,500 Petro Canada gas stations. Thus, lower input prices actually increase the profitability of Suncor’s downstream businesses. Accordingly, Suncor’s overall exposure to oil prices is lessened, and investors are able to rely on a more stable and steady cash flow stream over time.
In my view, the value of these high-quality assets is not reflected in the company’s share price today. I think Suncor’s stock is undervalued, and Buffett sees this. Indeed, following in the footsteps of one of the greatest investors of all time has rarely turned out to be a bad move.
There are certainly some risks with oil companies like Suncor. Such companies are price takers and are beholden to commodity prices. Oil prices have been proven to be highly volatile of late. Accordingly, and some investors might not want this volatility in their portfolios.
That said, Suncor is a behemoth in the energy space. This stock has the backing of one of the greatest value investors ever. There’s not a lot to dislike about this stock, especially at these prices.
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Fool contributor Chris MacDonald has no position in any of the stocks mentioned.
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