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Why Warren Buffett Bought More Suncor Energy (TSX:SU) Stock

Suncor Energy Inc. (TSX:SU)(NYSE:SU) is a severely undervalued oil kingpin that Warren Buffett bought more shares of in the second quarter.The post Why Warren Buffett Bought More Suncor Energy (TSX:SU) Stock appeared first on The Motley Fool Canada.

In a prior piece, I thought it would be a good idea for Warren Buffett to add to his stake in Canadian oil kingpin Suncor Energy (TSX:SU)(NYSE:SU) after the latest barrage of damage done to the stock.

The company had a strong balance sheet before it took its dividend to the chopping block. After a 55% dividend reduction, Suncor now has a Fort Knox-like balance sheet, making it one of few oil sands operators that’s capable of holding its own should the tides go out further on the Albertan oil patch.

Suncor battens down the hatches amid unprecedented headwinds

Sure, Suncor may have lost some fans with its dividend cut. Still, I thought it was only prudent to prepare for a potential bear-case scenario that’s a realistic possibility amid the COVID-19 pandemic. While oil prices have since regained ground lost back in March, it’d be unwise to assume that the worst is over for energy producers and that COVID-19 is no longer a concern for energy investors.

The insidious coronavirus is still out there, and anytime localities take the pressure off containing it, nasty outbreaks tend to ensue. A worsening of this pandemic could continue weighing on energy demand.

Predicting oil prices can be a dangerous game. There are far too many variables to conclude where either WTI or WCS prices are headed next. Given oil’s brief slip into negative territory earlier this year, investors must acknowledge that anything can happen with regards to oil prices over the near to medium term.

While WTI prices look to have stabilized in the low US$40 levels, there’s no telling what the next move will be, as it’ll likely depend on the pandemic’s next move. And in the background, renewable energy producers are picking up traction, acting as a modest secular headwind for all firms involved with the production and distribution of fossil fuels.

There are a plethora of seemingly insurmountable headwinds in the Albertan oil patch right now. But that’s not to say you should avoid the sector, especially given…

Joey Frenette

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