As oil prices continue to stagnate, and Canadian producers remain hindered by heavy crude discounts to WTI and Brent pricing, companies like Cenovus Energy Inc. (TSX:CVE)(NYSE:CVE) have continued to underperform broader markets as we enter into one of the worst oil markets of all time.
Following a commodities sell off in 2016, this most recent oil selloff has hurt Canadian producers in a disproportionate manner due to the lack of relative value provided by Canadian oil to the country’s main export partner, the United States.
The U.S. has grown oil production rapidly, becoming the world’s largest producer of crude, and as Canadian pipelines have hit capacity, a combination of higher supply/inventory levels in Canada and lower demand in the United States have hit producers like Cenovus harder than most.
I like Cenovus’ core business model much more than many of its peers, and have for quite some time. The company is more well integrated than most of its peers, and receives a significant portion of its revenues from non-WCS crude avenues.
At current levels, modeling in some sort of reversion toward a longer-term mean for WCS prices, Cenovus could turn out to be an excellent contrarian play for astute investors willing to take the risk on a beaten up stock which many think may not recover to its former glory ever again.
My take: never say never with a high-quality company like Cenovus Energy.
Invest wisely, my friends.
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