How do you define “dead money?”

As tax-loss season is upon us, at Contra we are revving up the buying machine. The due diligence that is our bellwether mostly applies to this time of year when 75-per cent-plus of our purchases are usually made. Some years the hunting is easier, but this year, not so much. Markets seem high by our standards, with price-to-earnings ratios toward the top end of the statistical norm and options trading at record volume levels. Initial public offerings are being issued left, right and centre as companies attempt to capitalize, especially in the technology patch. Shades of the turn of the millennium, so it seems.

Then there are the special purchase acquisition companies, or SPACs, which have become way more popular lately. Investors have plowed more than US$30 billion into them this year and they have no idea what enterprises they are purchasing. Often the money goes to leveraged buyouts. We suspect there will be much heartbreak around these: another indicator of the current bubble.

All told, lots of newly minted stay-at-home investors will likely get burned and recoil quickly from playing the stock market when the drop occurs. Of course, knowing when that will be is difficult, but we are already treading lighter on the buy side in anticipation that there will be greater bargains later.

As usual, our penchant is to cherry-pick stocks and those in woebegone sectors are of particular interest. Airlines, cruise lines, hospitality and, of course, oil and gas all fall into this package, with the latter currently seeming to have the most options. The problem though, and it is a mighty one, is finding a few enterprises that do not have decimated balance sheets or revenues that have caved with oil prices in the range of US$40 a barrel.

One possibility that could appeal to people who want to buy into larger companies and avoid the smaller fry is Suncor Energy Inc. This is the fifth-largest integrated energy company in North America. Headquartered in Calgary, its primary business is developing the Athabasca oil sands in Western Canada. But it also has operations on the East Coast as well as in Britain and Norway. Besides exploration and production, it also does refining and marketing and has four windfarms. At the end of the fossil fuel hose are its Petro-Canada locations.

Suncor has been profitable nine of the past 10 years. Recently though, it has been facing strong headwinds. Last month, the quarterly operating loss was $302 million with a net loss of $12 million. That latter number compares with net profit of $1 billion one year ago.

In 2018, the stock price was above $50. As recently as January it was around $45. But then it melted to just over $14 this month, jumping to around $19 with the Pfizer announcement, on Nov. 9, about its promising Covid vaccine. That rally is continuing, with the stock jumping more than 8 percent in Monday trading to close at $21.92.

It is unfortunate that during the constant money-making years, Suncor did not focus on paying down debt. If it had, interest payments would be far less and dangers from an inconsistent oil price would be diminished. Some of the heavy goodwill and intangible assets will likely need to be written down in the next year or so, denting the bottom line. Mercifully, those are not cash-based.

A continuing wild card for SU is the regular politicking between oil producing giants Russia and Saudi Arabia. If the two countries engage in another price war, once again that will negatively affect the sector. Perhaps they learned from their last dispute, which ultimately did not serve either country’s interests.

One interesting aspect of this epoch is how dependent on the other out-of-favour sectors Suncor is. Once Covid-19 is tamed, the airlines, cruise companies and hospitality industries should all come roaring back. In addition, people will be motoring to more gatherings and restaurants, all activities that will help the energy domain. That should help boost the stock price. When all this will happen is difficult to know, but even pessimists conjecture that it will be in the next three years. Of course, investors have to think about the secular move away from fossil fuels, but while front and centre in the news, this will certainly take time.

At the current price point, Suncor is too expensive for us. But it could falter in price as investors take their tax losses and the realization dawns that it will take longer to roll out a vaccine to the population than the current excitement suggests. If the stock price drops toward the low teens level, which is not out of the question, SU could look handsome in a Contra portfolio.