Cenovus Energy Inc.: Why Buying Shares Now Will Give You Your Money’s Worth

Don’t be afraid of falling oil prices. Invest in Cenovus Energy Inc. (TSX:CVE)(NYSE:CVE) for the long haul instead.

| More on:
The Motley Fool

The fall in oil prices is proving to create great opportunities for investors to snag superior companies at a bargain.

One such company is Cenovus Energy Inc. (TSX: CVE)(NYSE: CVE), an integrated oil and gas company and one of the biggest players in the sector. It has major joint collaborations at Foster Creek and Christina Lake, and many analysts believe production should increase vastly over the next few years.

But the pressure on oil prices is inadvertently putting pressure on Cenovus’ stock price. The company recently hit a five-year low and has been experiencing operational hiccups over the past few years.

However, in the long term, Cenovus continues to look like a good investment. The company announced its third-quarter results last week and overall, they were not bad at all given how much oil prices have tanked. It got higher prices for its natural gas and its cash flow increased about 6%, leaving those who track the stock pretty impressed indeed. Cenovus has also boosted its cash flow estimate for this year to roughly $3.9 billion, which, according to its current valuation, means the stock is trading just under five times cash flow. So the stock does have potential to grow stronger.

Over the past few years, Cenovus has upped its production by about 100% since its parted ways from EnCana Corporation in 2009. Last week’s earnings release showed the company boosting its 2014 production guidance by 0.5%, which is welcome news.

Its dividend has also been on a steady climb, increasing about 33% since 2009. The company currently pays about $1.06 dividend, with a yield of about 3.8%. And with its increased production outlook, investors are likely to see more dividend increases.

The company (along with its partners) operates two major projects, amongst them the Christina Lake project and Foster Creek. The projects performed better than analysts’ expectations with combined oil sands production coming in at 125,000 barrels per day and a modest $12.39/b oil sands operating costs for the Christina Lake project.

In spite of oil prices slipping, Cenovus has a lot of potential growth in its pipeline, making it a great buy at current levels. It will be interesting to see its plans for the next year when it releases its 2015 budget on December 11.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Sandra Mergulhão has no position in any stocks mentioned.

More on Energy Stocks

Arrowings ascending on a chalkboard
Energy Stocks

Beat the TSX With This Cash-Gushing Dividend Stock

Canadian Natural Resources stock is well set up to beat the TSX as it continues to generate strong cash flows…

Read more »

energy industry
Energy Stocks

2 TSX Energy Stocks to Buy Hand Over Fist Now

These two rallying TSX energy stocks can continue delivering robust returns to investors in the long term.

Read more »

green energy
Energy Stocks

1 Magnificent TSX Dividend Stock Down 37% to Buy and Hold Forever

This dividend stock has fallen significantly from poor results, but zoom in and there are some major improvements happening.

Read more »

oil tank at night
Energy Stocks

3 Energy Stocks Already Worth Your While

Here's why blue-chip TSX energy stocks such as Enbridge should be part of your equity portfolio in 2024.

Read more »

Solar panels and windmills
Energy Stocks

1 Beaten-Down Stock That Could Be the Best Bet in the TSX

This renewable energy stock could be one of the best buys you make this year, as the company starts to…

Read more »

Dice engraved with the words buy and sell
Energy Stocks

Is Enbridge Stock a Buy, Sell, or Hold?

Here's why Enbridge (TSX:ENB) remains a top dividend stock long-term investors may want to consider, despite current risks.

Read more »

Gas pipelines
Energy Stocks

If You Had Invested $5,000 in Enbridge Stock in 2018, This Is How Much You Would Have Today

Enbridge's high dividend yield hasn't made up for its dismal total returns.

Read more »

Bad apple with good apples
Energy Stocks

Avoid at All Costs: This Stock Is Portfolio Poison

A mid-cap stock commits to return more to shareholders, but some investors remember the suspension of dividends a few years…

Read more »