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This Canadian energy company is one of Berkshire Hathaway's biggest holdings

Petroleum storage tanks at the Suncor tar sands operations near Fort McMurray, Alberta. (Reuters)
Petroleum storage tanks at the Suncor tar sands operations near Fort McMurray, Alberta. (Reuters)

When Warren Buffett puts his money on something, people listen. So as a savvy investor you may be wondering if you should follow his lead and buy up shares of one of Canada’s largest energy companies.

Even with the volatility of oil prices, an investment in Suncor Energy Inc. is, by and large, a good thing for many Canadian investors, say financial experts.

“It’s uncertain where oil prices will go,” says Scott Clayton, a senior researcher with TSI Network, a Toronto portfolio manager and newsletter publisher. “Oil will remain volatile—it could drop further or rise up. But we feel that most investors should have some oil and gas exposure in their portfolios and the best way to do that is with good dividend-paying stocks such as Suncor.”

“One thing we really like about Suncor is that at 3.2 per cent, Suncor has a high yield dividend for an oil and gas stock.”

As arguably the world’s savviest investor, Buffett beefed up his position in Suncor late last year boosting his share in the company to about $1.1 billion. That amount represents 30 million shares of the energy giant, a sum purchased in the third quarter of 2015 by Buffett’s Omaha-based multinational holding company Berkshire Hathaway. The move made Berkshire the ninth largest shareholder in Suncor as of late September. His previous investment was worth about $815 million, a stake of 23.3 million shares. Suncor now comprises 0.63 per cent of Berkshire’s portfolio, and is its 20th biggest holding, according to Financial Post.

Suncor’s downstream interests are another reason why investing in the company would be wise, says Clayton. As a major North American refiner, operating four refineries in Canada and the U.S., the oil company can process nearly 500,000 barrels of crude per day, according to The Motley Fool. Plans are also in the works to expand in Europe and off the coast of Newfoundland. A merger with Petro Canada means Suncor owns 1,500 gas stations, a large downstream market for its refined oil.

“Suncor benefits from lower oil prices because the costs of the primary input into the refineries are lower,” says Clayton. “That’s called an integrated oil company. It not only has oil production but also downstream operations.”

Another reason for Buffett’s bullishness on Suncor might have to do with its acquisition in March of Canadian Oil Sands Ltd. The energy giant acquired Canadian Oil Sands for $6.6 billion, a move that lets big firms like Suncor streamline operations and cut costs.

“Even with low oil prices their strong cash flow and sound balance sheet lets them buy beaten down oil stocks,” Clayton says. “It’s a chance to buy assets at distressed prices.”

As Suncor Energy is Canada's leading integrated energy company, its operations include oil sands development and upgrading, conventional and offshore oil and gas production, petroleum refining and product marketing under the Petro-Canada brand.

Known as a patient and clever investor who is watched by many, Buffett’s investment in Suncor is believed to be his first in a Canadian corporation. “If it’s not the first time, it’s definitely the largest stake he’s ever taken in a Canadian company,” Barry Schwartz, a vice-president at Baskin Financial Services told The Globe and Mail in 2013.

Will Buffett’s rising interest in Suncor be seen as a validation by shareholders and potential investors, many of who are disillusioned by the struggling oil industry?

“I don’t want it to sound like I’m making a recommendation but we can take his behaviour as a lesson,” says Marshall McAlister, a chartered financial analyst with Pavilion Investment House in Edmonton. “If he’s one of the greatest investors in the world maybe we should take a lesson that owning businesses over a long time is the wise thing to do.”

Buffett’s Midas touch has reached into many sectors and includes popular brands such as Heinz, Benjamin Moore, American Express, Pampered Chef, Dairy Queen and Fruit of the Loom.