Cenovus Energy (CVE.TO)

He has problems with them. It is not a nice balance sheet. It was a thermal operator and now they are a conventional operator and people will take time to know they are good at both. It has a couple of dollars downside on it.

The amount of debt is a concern, which is why they’re disposing of assets. Even with that leverage relative to its peers, free cash flow is lower. They don’t know who the next CEO is going to be. There is no reason to own this.

(A Top Pick Nov 4/16. Down 40%.) Had bought this with its clean balance sheet, etc. and then they made a gigantic acquisition which transformed it. However, they’ve been very successful at disposing of some assets, and he expects they will close on some more dispositions before year-end. They know they have to address the balance sheet problem.

Lower lows and lower highs, it is down, down, down. The whole energy space is challenged for the next number of years. We had a pull back. He thinks there is value here. It could take 6 months or a year before we realize that value. This company has company specific risk. He does not know if the deal they are going to do will be accretive or trouble like the market thinks. You need to see the trend stop going down. We might have some support coming in here. If it holds and we take out some intermediate highs of a few weeks ago, you can gain confidence that the bottom is in.

This is really out of favour, but in their last quarter they really surprised the street with a big tax rebate and a few other things that really helped boost their numbers. Longer-term, this is probably a good name, but still probably a “no touch” for 6 months to a year. Thinks the worst is over, but it may take a while for it to start reacting again.

He would stay away. Just reported with $.71 in cash flow versus $.53. The problem is, $13 billion of debt against $18 billion of equity. They are trying to sell $4-$5 billion of assets to get the balance sheet in line. The only buyers are a few Canadian companies. This company was doing very well in thermal, but by going in and trying to be Pan-Canadian again, getting into the conventional oil/gas business, the market is skeptical and the stock is going to go much lower.

They made an acquisition, and everybody thought they overpaid. Now they have a balance sheet problem, so before you get involved, wait to see what they dispose of and how much they get for it. She wouldn’t rush into this until they fix the balance sheet a little.

The chart is not looking too good. There is a distinctive trend down. It may be trying to form a base, showing an early sign of bottoming. You want more than just early signs. Seasonally these stocks do well from January to April.

Cenovus Energy (CEV-T) or Algonquin Power (AQN-T) for long-term gains and dividends? All interest sensitive stocks in a rising interest rate environment tend to pull back, especially so in a sharply rising rate environment, which she does not anticipate in Canada. If we get these pullbacks and high-quality utilities, it is a good time to get in. If you want yield, Algonquin Power is definitely the stock to get into. This one is an energy oil sands producer, whose cash flow is going to be largely predicated on what crude oil does.

This has been particularly hit with the acquisition they made, which they had funded with debt, and now have to figure out what to do with the assets they have to sell. As crude prices come down, the value of the assets they had hoped to sell, isn’t what it used to be. Be wary of companies that have too much debt. There are a lot better plays in the oil patch with a relative higher risk/reward.

$8 billion in debt, and at this oil price, the numbers don’t work. Profitability doesn’t work. This year is $8 billion of debt and next year $9 billion and next year is $10 billion and profitability is not there. Oil has to go to $60, which is the problem. This is too volatile for him.

In the 1^st quarter, they made most of their profits from their risk management side. Made $187 million from their hedge book, and their foreign exchange gain was $76 million, so there is about $263 million there. However, net earnings was only $211 million. They did an acquisition, and one negative was the stock issue they did, which is still down below here. BV is $11.49, so there is still a bit of downside.

Feels there is going to be a large overhang on this company for some time. They did a deal with Conoco (COP-N), issued a whole pile of stock and took on a whole pile of debt. That is really the inverse of what he would be looking for. There will continue to be an overhang with Conoco Phillips getting upside. If there is any oil appreciation, they are going to continue to get upside. However, $16 down to $12.80 is a nice downdraft, so you could almost argue that most of that is baked in. If they started to pay down the debt, that would be a really good sign.

A really good time to be taking a look at this, because it is a great contrarian play. They stretched to make their acquisition and have to make dispositions of assets. Probably took on a little more debt than they probably might otherwise could, and diluted the equity down. That asset sale aspect is troubling at a time when oil prices are $45. Who are you going to sell those assets to.

It is now back almost at the lows of early 2016. The oil and gas sectors are getting cheap again and he is starting to buy, but we could see further weakness. We could see oil prices cooling off and heading back to $40. Use caution. He is nibbling and accumulating. The M&A activity with CVE-T is interesting. He is not worried about it, but the market thinks it is an issue.