Suncor Energy Inc. (USA) (SU), Enbridge Inc (USA) (ENB): Finding the Right Tool to Profit From Canadian Oil Sands

When trying to find the next small cap two-bagger to add to my portfolio, I had to do some digging. I think most companies have realized their full value since plunging during the recession — but when I looked north, to Canada, I found the undervalued tool manufacture Logan International.

While the company is worth over $250 million, it hasn’t received much press coverage at all, and that has likely kept the price low. After all, the firm boasts incredible year-over-year revenue gains and a stellar profit margin. The company’s sales are also less than $200 million, which has likely kept the firm out of the public eye. However, with the financial books this sound, I can’t see this stock staying under $10 per share for very long. It is currently priced around $7.

On May 22, the company announced it would look to boost shareholder value, and that includes seeking proposals from potential buyers. Company officials believe the shares are priced at an extreme discount. “The Board of Directors undertook a thorough review of the company’s current share price, assets and operations, and concluded that the common shares of Logan trade at a substantial discount to the inherent value of the businesses and underlying assets of Logan,” the company stated in a release.

The only logical reason for the company’s low price is the lack of media coverage. The firm has managed to increase year-over-year revenue by an average of 46% in each of the last three years. And the average profit margin over that period has been 8%. Last year showed considerable signs of improvement when profit margin reached 15%

Profits hinged on Canadian oil sector

I see profitability in the oil sector waning in 10-15 years due to the development of cleaner forms of energy. In the meantime, however, Logan is positioned to profit from the industry because the sector accounts for a large portion of its sales. So how healthy is the Canadian oil sector? Let’s now take a look at two of the nation’s largest oil companies to try to find indications of where the sector is heading. Suncor Energy Inc. (USA) (NYSE:SU) and Enbridge Inc (USA) (NYSE:ENB) are the highest-valued oil firms in the nation.

Suncor Energy Inc. (USA) (NYSE:SU) provides a good indication of where the Canadian oil sector could be heading. Total oil sands production in the first quarter was 100,347 bpd, which is an increase of 22% from the Q1 2012. The company gives a guidance of 350,000 to 380,000 bod average daily oil sands production this year. Assuming 365,000 bod, that would add $660 million to the net income, which represents a $0.44 increase in EPS.