The TSX Capped Energy Index has fallen about 13% in the last 12 months. That hasn’t been a straight fall, but rather a series of ups and downs, but the general direction has been bearish. But now that oil prices are fortifying, things may take a turn for the better, at least in the short term. The energy sector in Canada has yet to avoid the correction many predicted it would experience after the powerful post-pandemic bull market.
Despite its resilience, many of the factors that were initially pushing on the energy sector are still there. Stricter emissions control, a rapid shift to electric vehicles (EVs), and a host of other factors are pressing down on the energy sector in Canada. In this environment, making the right call about an integrated energy giant like Suncor (TSX:SU) can be pretty challenging.
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The case for holding
Suncor stock is in a solid position right now. It mimics the sector’s/index’s performance to an index, but unlike the index’s slump from the peak point in the last 12 months, Suncor stock has barely fallen 2%. It’s also quite attractively valued right now, trading at a price-to-earnings ratio of just 8.8. The dividend yield is also decent (4.15%), and the company did a fantastic job recovering from the dividend slash.
The chances are that if you have bought this stock almost any time in the last five years, you are probably in the green. You can keep holding it for the short-term growth it may offer as oil climbs and for its dividends during the slump cycle if the energy sector goes into the correction phase. However, it’s challenging to make a case for holding Suncor for the long term.
The case for buying
Suncor’s chief executive officer recently announced that Suncor is safe from U.S. tariff issues, and it’s difficult to deny that position. The bulk of the company’s output remains in the country. As an integrated producer catering mainly to Canada, Suncor has a significant moat against U.S. tariffs that its competitors might not have.
While that strength may not lead to a strong long-term performance, primarily if the tariff threat doesn’t fully manifest. That said, a case for buying Suncor can be made, but not for right now. It would be prudent to wait and see the direction this energy stock takes in the next few months. It would also be a good idea to know the sector’s dynamics and stay clear of Suncor if the stock turns bearish. And if Suncor doesn’t slash its dividends in the next bearish cycle, buying it at the peak of the slump (to lock in the best yield possible) would be brilliant.
The case for selling
There is a strong case for selling Suncor for investors who believe the stock will take a turn for the worse. Even if it’s a modest slump, solidifying your gains (whatever you have till now) and re-buying it discounted might seem like a solid strategy. However, it’s only viable if both the slump and the subsequent recovery are substantial enough. Otherwise, holding might be a wise option.
Foolish takeaway
Considering the stock’s performance, the energy sector, and the overall uncertainty surrounding Suncor and other energy stocks, holding seems like the most prudent move right now, followed by selling for more skeptical investors. Buying is viable for investors who believe Suncor might climb up from this point onward, which seems unlikely, at least in the short term.
