Respect or Returns?

Apr 21st, 2010 – Comment

Long term SU is sitting on long lived assets and will produce wealth for investors but that doesn’t suggest its a buy and hold.


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Hello,

Is Suncor, a  top 10 world producer, going to see $45.00 in the next 12 months?

Thanks,

Gilles in North Bay,Ont.

 

Hi Gilles,

I covered Suncor Energy Inc. ( SU TSX) in June of 2009 after the takeover of PetroCanada was announced. At the time I said that the stock needed to get through $45.0o sustain the rally off the March 2009 lows. SU hasn’t been able to make a move higher but think about how fast a python moves after its swallowed an elephant.

Merging the operations of PetroCanada into the culture of SU has taken perhaps longer than some anticipated. From my experience mergers rarely go as smoothly as planned especially when the deal is sold as a merger of equals. When a merger is done in a respectful way as this deal was consolidation takes longer. I guess the issue is do you want respect or returns?

su

The three year chart highlights the range bound pattern that has emerged since June of last year with resistance at $40.00 and support at two different levels $35.00 and $30.00. SU breached support at $35 and that level now  is providing resistance.

 

 

 

 

su2

The six month chart clearly shows the resistance at $35 and the 200 day moving average.The stock has moved lower in the month of April.and at this point none of the indicators are suggesting that the stock is about to breakthrough and run higher. The pattern suggests that at the present time we  are in a trading channel  between $30 and $35.

In order to reach your target of $45 in the next year SU has to prove to the market that the merger is making progress in terms of effiiciency.In addition the company has to regain investor confidence after it suffered  three fires at its operations in Ft. McMoney since October of 2009. You can’t process bitumen if the plant is burning.

Long term SU is sitting on long lived assets and will produce wealth for investors but that doesn’t suggest its a buy and hold.

 

Happy Capitalism!

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