Getting Back to First PrinciplesOver decades that I have been investing yhere has been one fundamental principle that I followed. I wanted to put my money into investment where I could get the best risk adjusted return on that money.
So when I listen to the discussion as to how long it might take for alternative technologies to eliminate the need for the world to use petroleum products my overwhelming reaction from an investment point of view is that it doesn't matter. The point is that the direction arrow for the future is that there will be a substitution and so investment in energy outside of short term gains from market fluctuations cannot be better than investing elsewhere where there are significant growth possibilities. With growth comes the opportunity to make money.
To use Warren Buffet's investing principles, one of them is to invest in companies that have a moat around them. In the case of oil, this moat has been breached. How long the siege takes before submission is just a matter of time but for sure there is no way for the moat to be rebuilt and force the invaders to find another target.
Another way to look at this is to sit back and do an inventory of the number of things around you that didn't exist when you were an infant. The older you are, the longer the list. At my age when I look around just about everything I see didn't exist when I was a child. The rate of change of these changes is getting quicker and so it will be a shorter time before something becomes obsolete and something new takes its place. This is going to happen to oil. It's not an "if"....it is a "when".
Getting back to my opening paragraph, the key to successful investing is to figure where this change is going and find companies that will ride that wave.
In the case of SU, for sure because it is a low cost producer and is finding ways to further reduce these costs through co generation etc, it will make huge profits for another X number of years. None of this is a secret and has been by and large priced into the SP already. Company management has been doing a good job using these outsized profits/FCF for share buybacks and debt reduction which are good things but none of that excites the grownups on Wall Street and Bay Street and elsewhere around the world. All they see (rightly or wrongly) is a company that doesn't have any good ideas to use this money to grow the company and so they are just giving it back to shareholders in one form or another and they are doubling down on oil by buying Fort Hills and planning to spend billions on this operation.