Until there’s evidence of cooling inflation, the bond market will probably think more rate hikes are needed. More rate hikes mean more pain for tech stocks. At this juncture, though, it seems like the 10-year note yield can do nothing but move higher.
Should the selloff in bonds ease and yields cool down, tech could be ready for a historic melt-up. But until that happens, energy stocks are a great place to be in. They’re still rate sensitive, but far less so than your average 30 times sales stock trading on nothing more than a story.
Dividends are something to fall back on in times like this. If you’re going to deal with rampant volatility, you may as well get paid a cash dividend to deal with it! That’s why I’m a huge fan of dividend stocks, even if they’ve been bid up in recent months over the rate-induced shock.
There’s plenty of value out there if you know where to look. Better yet, there’s value (and yield) in various momentum plays. Commodity stocks have been a glimmer of hope in such a grim market, and they’re worth looking to. Cenovus Energy (TSX: CVE)(NYSE: CVE) is one energy producer that’s really been hot of late.
Cenovus: One of the last places to hide in a volatility storm
After trailing the markets for so long, Cenovus is finally getting its day to shine. Though shares have doubled up many times over on unforeseen exogenous events, its stock probably never should have traded at the vast discount it did back in 2020.
Today, Cenovus seems like one of few stocks worth owning. Everything else seems to be in free fall these days! Shares boast a 1.7% dividend yield and a modest price-to-book multiple — though it is worth noting that shares no longer trade at a discount to book value.
On Monday, Cenovus fell more than 7%. It was a down day for nearly every asset class. Still, I’d say the dip is more of a buying opportunity than a cause for panic. Oil prices could stay much higher for longer, with the ongoing conflict in Ukraine. I don’t think many nations are going to be looking to Russia for oil anytime soon. As such, I think it’s only prudent to expose yourself to domestic energy producers, as there’s no telling how long the war will last.
Further, Cenovus has been working on its steam-aided extraction over the years. Over time, such projects could improve breakeven prices. Even without an improvement of breakeven prices, US$100 WTI is sure to make Cenovus a cash cow. It’s more sensitive to oil price moves than many other energy names. And in a time like this, that’s a good thing. The longer oil stays elevated, the greater the chances the stock will reach all-time highs.
Cenovus was a perennial underperformer until it wasn’t. I think its days as an outperformer are far from over. If anything, investors lacking oil exposure should seek to buy CVE stock here, as it still looks severely undervalued, assuming oil does not crumble below US$50 again. Given geopolitical turmoil, I’d say such a scenario is highly unlikely.
The bottom line on Cenovus Energy
Sensitivity to oil moves used to be a bad thing. Now, it’s sought after. If we are in for a recession or stagflation, I suspect CVE can hold up under its own power.
