American business tycoon Warren Buffett looks after the welfare of Berkshire Hathaway (NYSE:BRKa) shareholders. He ensures they’re up to date on the conglomerate’s goings-on through annual letters. In the most recent filing with the SEC, Berkshire added another energy stock, oil major Chevron (NYSE:CVX), to its portfolio in Q4 2020.
Suncor Energy (TSX:SU)(NYSE:SU) was the lone energy stock before the said quarter and the only remaining Canadian stock in Berkshire’s basket of equities. Buffett kept Suncor shares, although the position is down to 13.8 million shares as of December 31, 2020. However, will the value investor hold onto the TSX stock for dear life or eventually ditch it to accumulate more of the Dow Jones constituent?
Focus on financial health and resiliency S&P Global Market Intelligence reports that Suncor Energy is less than one-tenth of a percent of Berkshire’s total equity portfolio. The holding isn’t much, although it’s very meaningful to the Canadian firm. Berkshire remains a top-25 shareholder, as the stake represents nearly 1% of Suncor’s outstanding shares. Like Buffett, Suncor’s focus is on financial health and resiliency.
The $34.17 billion oil sands king is moving heaven and earth to manage debt and reduce outstanding obligations in 2021. Thus far, its strategy is progressing well. Management pre-maturely cancelled the bi-lateral credit facilities to gain access to adequate financial resources.
Suncor sold senior unsecured notes and intended to use the net proceeds to repay commercial paper and have funds for general corporate purposes. The company might also invest the funds in bank deposits and short-term marketable securities. Since the commodity price environment is improving, Suncor no longer needs bi-lateral credit facilities. There’s no penalty for the early cancellation.
Gaining lost ground Suncor investors lost 47.7% last year besides the 55% slash in dividends. The energy stock, however, is recovering lost ground in 2021 with its 38% year-to-date gain. You can purchase the stock today at $29.32 per share. The dividend yield is a decent 2.91%. Market analysts forecast the stock price to appreciate between 7% to $31.28 and 81% to $53 in the next 12 months.
If you recall, Buffett exited from the energy giant entirely in 2016 only to take new stakes in Q4 2018. Perhaps the GOAT of investing is keeping Suncor because the oil space will do better going forward, especially in Canada. The sector should heat up when demand returns. Hence, there’s a lot of positives.
Best of breed Suncor’s oil sands development is well managed and low cost, while the reserve life is long. These attributes give the company financial strength and be a better option than its mid-sized or smaller industry peers. Note that Suncor is an integrated energy firm. It also engages in offshore oil production, biofuels, and renewable energy, like wind. The retail network, consisting of 1,500 Petro-Canada stations, sells refined fuel.
Suncor Energy remains a suitable anchor for regular investors who can stomach the industry headwinds. The business remains incredible and could see increasing cash flow as well as generate significant free cash flow in the economic recovery phase. Furthermore, if Buffett preserved the Canadian stock in his value-oriented portfolio, it must be a great value stock option.
The post Warren Buffett Advice: 1 TSX Stock He’s Holding Onto for Dear Life appeared first on The Motley Fool Canada.
Fool contributor Christopher Liew has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Berkshire Hathaway (B shares) and recommends the following options: short January 2023 $200 puts on Berkshire Hathaway (B shares), short March 2021 $225 calls on Berkshire Hathaway (B shares), and long January 2023 $200 calls on Berkshire Hathaway (B shares).
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