1 of Canada’s Cheapest Energy Stocks Could Be Ready to Rocket Higher Over the Next Few Years

Cenovus Energy Inc. (TSX:CVE)(NYSE:CVE) could be a deep-value stock for the ages. Here’s why investors should load up today.

| More on:
The Motley Fool

If you’re a deep-value investor, Canada’s beaten-up energy sector is a great place to look.

Although oil prices have rallied to the US$60 levels, many firms operating in Alberta’s oil patch have yet to show any signs of a rebound. At the time of writing, Western Canadian Select (WCS) is trading at a ~30% discount to West Texas Intermediate (WTI) thanks to pipeline and rail bottlenecks.

If you look at the long-term charts of many of Canada’s most beaten-up oil stocks, it looks like no progress has been made; however, this couldn’t be further from the truth. Many firms are in much better shape operationally than they were a few years ago, despite shares being near all-time lows.

At this point, nothing but pessimism is baked in to shares, but there are signs of hope. Many pundits believe that the price gap between WCS and WTI will shrink in 2018, as more Canadian heavy crude is transported to U.S. refineries via rail. If that’s the case, some of Canada’s hardest-hit names could be due for a pop. It appears that a bottom may finally be close; however, contrarians jumping in today should expect more stomach-churning volatility, as it’s very likely that prices will continue to post triple-digit movements in either direction over the short to medium term, even though the sentiment is slowly improving.

Consider Cenovus Energy Inc. (TSX:CVE)(NYSE:CVE), a severely undervalued stock that could soar once WCS makes a move higher.

The company has been investing in innovative new extraction methods, including a steam-assisted solvent-aided process which aims to cut down on both costs and greenhouse gas emissions. Given that oil sand operations are ridiculously expensive and difficult to profit on, such cost savings are absolutely essential if such firms are to thrive (or survive) over the long haul.

I’m a huge fan of Cenovus’s extraction tech, as it could allow Cenovus to be an incredibly efficient operator down the road; however, investors are going to need to be patient and ride out the roller-coaster ride for now, since the promising new extraction tech and the implied cost savings could be over a year away.

Bottom line

Cenovus has disappointed investors for many years, but it’s been laying a great foundation for itself. Over the next five years, I believe Cenovus will be a much lower cost operator, but don’t expect the stock to be depressed like it is today, as the price of admission will likely be a lot higher.

Shares currently trade at a mere 4.17 trailing price-to-earnings multiple, a 0.8 price-to-book multiple, a 0.7 price-to-sales multiple, and a 5.4 price-to-cash flow multiple. All are substantially lower than the company’s five-year historical average multiples. If you can withstand the volatility and hang on for the long-term ride, I’d buy and hold Cenovus today, as the stock is far too cheap when you consider the company’s promising long-term prospects.

Stay hungry. Stay Foolish.

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 Joey Frenette has no position in any of the stocks mentioned.

More on Energy Stocks

Offshore wind turbine farm at sunset
Dividend Stocks

Why Smart Investors Are Putting Money Into This Overlooked Sector

Energy can be a great place to earn some cash, especially from this company looking towards the future.

Read more »

senior couple looks at investing statements
Top TSX Stocks

6% Yield! This Dividend Stock Is My Retirement Insurance Policy

Is your portfolio setup to provide a stable and growing source of income? Here's my retirement insurance policy stock to…

Read more »

A close up color image of a small green plant sprouting out of a pile of Canadian dollar coins "loonies."
Energy Stocks

1 Dividend King Down 17% Is My Top Value Pick

Canadian Natural stock may be off 17%, but its solid fundamentals and rising dividends make it an attractive buy right…

Read more »

Group of people network together with connected devices
Energy Stocks

Everyone’s Talking About Energy Stocks. Here’s a Smarter Way to Invest

Invest wisely in energy stocks. Discover how Canada's energy sector offers attractive dividends and solid returns amid global shifts.

Read more »

Oil industry worker works in oilfield
Energy Stocks

This Canadian Energy Stock Is Down 31% and Ready to Soar

Consider adding this discounted energy stock to your self-directed investment portfolio while it still lags behind the rest of the…

Read more »

Trans Alaska Pipeline with Autumn Colors
Energy Stocks

Pembina Pipeline: Buy, Sell, or Hold in July 2025?

Currently, Pembina Pipeline looks like a solid hold or moderate buy for long-term investors.

Read more »

Woman checking her computer and holding coffee cup
Energy Stocks

Should You Buy Cenovus Stock While It’s Below $20?

Cenovus stock is under $20, so you need to consider this stock before it starts surging.

Read more »

iceberg hides hidden danger below surface
Dividend Stocks

A 7.4% Dividend Stock Paying Cash Every Single Month

The high-yielding monthly dividends for Whitecap Resources (TSX:WCP) look attractive, but are they sustainable? Let’s find out.

Read more »