The current supply chain disruptions have caused oil and natural gas to become highly sought-after commodities, resulting in an upward trend for oil stocks. Companies like Suncor Energy (TSX:SU) are able to capitalize on this trend by selling their products at market rates, generating windfall profits with low production costs. However, the question arises whether it is wise to invest in a cyclical stock like Suncor at its peak.
It is advisable to avoid purchasing Suncor stock at $50 or above, as the stock may struggle to reach those levels again if it enters a downward cycle. Market timing is notoriously difficult, even for experienced traders. For those looking for short-term gains, it may be more prudent to wait for the stock to return to its normal trading price of $45.
At the $45 price point, investors can secure a higher yield of 4.8% with lower downside risk and higher upside potential. With an anticipated reversal in interest rate trends later this year, the focus is expected to shift towards growth stocks. Rather than risking investment in oil stocks, consider allocating funds to a tech stock like BlackBerry, which could see a surge in value as vehicle sales rebound.
The automotive industry is currently experiencing a downturn, presenting an opportunity for investors to profit from the oil uptrend and redirect funds to the automotive sector. As the market cycle shifts, automotive stocks are expected to appreciate, potentially leading to significant returns.
In contrast to volatile cyclical stocks like Suncor, there are also stable energy infrastructure stocks such as Enbridge (TSX:ENB) that offer consistent income regardless of fluctuations in oil and gas prices. Enbridge, with its extensive pipeline infrastructure in North America, is strategically positioned to benefit from the increasing demand for liquified natural gas (LNG) and renewable energy sources. The recent disruptions in the oil and gas supply chain present Enbridge with new revenue opportunities, such as LNG exports and acquisitions of U.S. gas utilities.
Enbridge’s stock price typically fluctuates between $45 and $55, making it an attractive option to consider purchasing below $50 for a 7.5% dividend yield. The company’s long-term stability and potential for dividend growth make it a favorable investment choice, with a projected dividend growth rate of 5% by 2027.
Investing in Enbridge offers a predictable and reliable source of income, with the potential for substantial returns over time. By strategically allocating funds to stable and growing companies like Enbridge, investors can mitigate risks, build passive income streams, and enhance the overall performance of their investment portfolios.
