Saturday, June 28, 2014

Adding Suncor to the Beating Buffet portfolio

I have really focused on oil stocks as I have built the Beating Buffet portfolio. The reason for this is because oil is the lifeblood of our modern civilization. Everything is incumbent on plentiful and relatively cheap supplies of this resource. It is safe to say that without oil there would be a big die off among the worlds population and a 18th century lifestyle for the remaining population. On the demand side we are continuing to see increases from industrializing countries in Asia and in other parts of the world. Demand is not going down except during times of economic contraction. On the supply front it is obvious that the cheap easy to find oil has been produced. Even though we are enjoying a shale oil bounty here in the US it is without a doubt expensive and technically challenging. Forget about the Middle East, any and all US activities in this region are based solely on securing and controlling the safe production and transportation of oil out of the region.


Buying into plentiful resources of oil in politically secure areas seems like a prudent hedge against the above outlined risks. It is fascinating to me that even in a time when we are in a low growth environment in the US, Japan, and the EU that oil prices are still over $100 per barrel. As long as they stay in this region there are many companies that will do well financially. Suncor is one of them.


Reasons for putting Suncor (SU) into the portfolio:


  • Long life oil sands resources in Canada
  • 50-60% production growth between now and 2020
  • Returning cash to shareholders via stock buybacks
  • Over the last five years, the company has been able to grow its dividend payout at a CAGR of 35 percent.
  • Low payout ratio with room to increase dividends and buybacks





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