Cenovus Energy’s (TSX:CVE) stock price surged 7% a day before its fourth-quarter earnings as rising tensions in the Middle East increased oil prices. Cenovus is an integrated oil company involved in the extraction and refining of oil and natural gas. It posted a decline in revenue and profits as the oil price fell from its record high of US$80 to US$100 per barrel.
Cenovus Energy’s fourth-quarter earnings highlights:
- Revenue decreased by 6.6% year over year to $13.1 billion despite an increase in oil production.
- Net earnings decreased 5.2% to $743 million.
- Net debt was reduced by $916 million to $5.1 billion, coming closer to its target of $4 billion.
What to expect from oil stocks in 2024?
Oil is a depleting industry as the world is moving towards renewable energy. However, it is a crucial industry as there are many uses where there are no greener alternatives to oil.
Most oil companies have range-bound stocks, as they can only sell their output at the market price. Oil prices are influenced by geopolitical events, the Organization of the Petroleum Exporting Countries (OPEC) oil output, and demand and supply dynamics. OPEC countries have a cost advantage over Canadian companies in oil production. However, a slowdown in the global economy is expected to reduce oil demand.
Over the last two years, OPEC kept the oil price elevated by reducing their output. However, the International Energy Agency (IEA) forecasts worldwide crude oil demand growth to slow to 1.2 million barrels per day (bpd) in 2024 from 2.3 million bpd in 2023. A surge in oil supply outside OPEC could help meet the demand surge. It could ease oil prices and normalize the profits of oil companies like Cenovus.
Cenovus Energy’s stock price momentum
Cenovus Energy’s stock price is down 17% from its October 2023 high and has been trading within the $21-$28 range post-pandemic. It pays a quarterly dividend of $0.140 per share. A 2.38% yield on a range-bound stock is not the best bargain.
Suncor Energy is a better oil stock if you are looking for dividends. It has an annual dividend yield of 4.87% at the time of writing this article. It also has a stronger history of growing dividends. While Cenovus suspended dividends during the pandemic, Suncor cut its dividends by a third.
One reason to buy Cenovus stock is its higher volatility and broader stock price range compared to Suncor ($38-$46). If you were to buy Suncor stock at $38, the highest growth you can expect is 21%. Whereas if you buy Cenovus stock at $21, the highest growth you can expect is 33%.
You could consider buying Cenovus stock if you expect the oil price to surge to US$90 a barrel or more. Why do I say this even when the IEA expects oil prices to ease? Oil is a volatile commodity, and expectations can always go sideways in case of contingencies. Any developments in the Russian-Ukarian war or the Middle East war, a drastic reduction in oil supply by OPEC, a sudden surge in oil demand, or a fire in a major oil refinery could alter the expectations. For instance, the Suez Canal obstruction in March 2021 – a cargo ship “Ever Given” was stuck in the canal – increased oil stocks as the ship blocked the global oil supply, creating a temporary shortage.
Investing tip
Oil stocks are a good investment to hedge your portfolio against high inflation. While you could invest in Cenovus for the short term, consider diversifying your portfolio into long-term growth stocks. There are better dividend stocks like Enbridge and Brookfield Renewable Partners that have a higher dividend yield.
