Cenovus (TSX: CVE) recently completed a major acquisition. Investors who missed the stock’s stellar rally off the pandemic lows in the past five years are wondering if more upside is on the way and if CVE stock is still attractive for a self-directed Tax-Free Savings Account (TFSA) or Registered Retirement Savings Plan (RRSP) portfolio.
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Cenovus share price
Cenovus trades near $23 per share at the time of writing. The stock is up 200% in the past five years, although it has traded in a range of $20 to $30 since early 2022, with a brief dip down to $15 this year during the April tariff rout.
Cenovus operates oil sands and conventional oil production assets in Canada. The company recently completed its $8.6 billion takeover of MEG Energy. The deal adds oil sands properties that are adjacent to assets already owned by Cenovus, providing an opportunity for synergies while adding significant long-life reserves and low-cost production. Cenovus immediately gets a boost of 110,000 barrels per day of output from the assets.
Opportunities
Canada is now focused on expanding its oil export capacity to enable production growth while easing reliance on the United States for oil sales where Canadian producers typically receive a lower price than they would by selling the crude oil to global buyers.
The opening of the Trans Mountain expansion pipeline last year has already helped Alberta’s oil producers. As the capacity in that pipeline fills, Trans Mountain is considering new investments to expand its capacity. Discussions are also underway to potentially build a new pipeline to the coast of British Columbia. That would provide additional capacity for Cenovus and its peers.
Additional brownfield capacity expansion is also on the way into the United States. The American market will remain important, even as Canada works to diversify its energy sales.
Risks
Oil prices are under pressure this year. In fact, West Texas Intermediate (WTI) recently dipped to US$55 per barrel, a low not seen since 2021. WTI currently trades near US$56.50 compared to more than US$80 last year. Analysts broadly expect the market to remain in a surplus situation in 2026. Supply growth in Canada, the United States, and among OPEC members is higher than the anticipated growth in demand.
China’s economy remains under pressure due to property market challenges and the impact of U.S. tariffs. In the United States, the economy is holding up well, but any weakness next year due to tariff pressures could reduce oil demand in the world’s second-largest oil market.
Time to buy Cenovus?
Oil bulls who are of the opinion that new export capacity will get approved and built in Canada might want to start nibbling while the oil market faces some headwinds. Cenovus owns attractive long-life assets and will benefit from expanded production over the coming years. At the current share price the stock offers a decent 3.5% yield, so you get paid well to wait for a rebound. The oil market will eventually rebalance and CVE has attractive upside potential when oil prices recover.
If you have a buy-and-hold strategy and don’t mind riding out some turbulence, CVE deserves to be on your radar for an energy portfolio.
