For investors searching for undervalued companies with the potential to break out over the next 10-plus years, companies like Cenovus Energy Inc. (TSX:CVE)(NYSE:CVE) that have the ability to do so and are supported by solid fundamentals are certainly hard to come by, given the increased valuations most companies are trading at today.
Cenovus has been dealt a series of blows in recent years, which have significantly hampered the company's stock price.
Depressed commodity prices have led to a sector-wide downturn, and companies operating in Canada's oil sands (such as Cenovus) have been dealt a doubly harsh blow as higher quality and cheaper-to-produce variants of oil have become more readily available in North America, widening the discount heavy oil producers in Alberta receive relative to their global counterparts.
This heavy oil discount has provided perhaps the strongest headwind to an otherwise solid company with a relatively decent balance sheet. This week, Cenovus announced it has engaged in two key crude by rail deals with Canada's largest railroads, providing Cenovus with increased access to global markets, at a price.
While the company did note that the costs of transporting crude by rail are relatively high (more than $13 per barrel), increasing production output and access to global commodity markets is likely to continue to provide significant upside to companies like Cenovus when comparing Cenovus to oil sands peers.
From a fundamental standpoint, Cenvous remains a top value pick of mine for investors looking for beaten-up companies at reasonable valuations.
Invest wisely, my friends.
