Value investors looking for “good deals” on most global stock exchanges have certainly had their work cut out for them in recent years. As valuation multiples have expanded toward record levels, picking up shares of companies which would otherwise be considered “steals” is an extremely difficult task in this current environment. That being said, a few high quality value plays remain, and in this article I’m going to discuss one Canadian beaten up oil & gas company: Cenovus Energy Inc. (TSX:CVE)(NYSE:CVE).
Cenovus is on oil sands producer operating primarily in Alberta, with significant exposure to a number of key headwinds which could potentially drive the company’s share price lower in the near term. Issues relating to the current disparity between heavy oil out of Canada’s oil sands and lighter oil produced by fracking are likely to continue in the medium term, due in part to the reality that new pipeline capacity and downward pressure on commodity prices is likely to make oil sands production look even worse in the coming quarters, pushing more and more investors out of the game at a time when Cenvous may be ready to turn the corner.
The company is working on introducing new technologies to lower its cost of production significantly from current levels, which could (within the next two to three years) result in a profitable operation at around the US$45 per WTI barrel price. With the heavy-light discount likely to dissipate somewhat right around the same time Cenovus introduces its new production technology due to increased pipeline and rail capacity, the company’s current share price appears to be very low in relation to the business’ long-term potential.
Invest wisely, my friends.
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