As long as the price of oil is falling you need to be short Suncor Energy Inc. (SU)

Current Price: $30.45

Price Target: $18.50 (if oil (WTI, Brent) prices continue to decline, then stay below 70 for sometime)

Recommendation: Sell



There are a few main reasons why I believe that the low oil price environment may be sustained long enough for this stock to touch 20 dollars. Over the past few years the U.S. has been increasing their oil production to the point where earlier this year they became the world's biggest oil producer. It is no wonder the Saudis told America where to shove it when they requested a production cut. Ha. All this additional oil sloshing around the world and global growth heading south.....well, you get the idea. Simple enough without considering the possibility that the price of oil may have been weaponized to combat political foes....anyways.


To me, this trade is very simple:


  • high cost of production + low commodity price = low to no revenue environment

  • who cares what the dividend is if the company stops making money? (motley fool published an article last week about how the dividend was an incentive to purchase. I guess they don't anticipate a dividend cut. I never really understood that way of looking at things - I lost half my money, but hey!, I get a wicked yield! - Ha!)

  • With all of the oversupply and most participants unwilling to compromise market share - the bottom could be a dark place. Exhibit A - the past:

Wikipedia




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