Cenovus Energy (CVE.TO)

(Market Call Minute) Avoids heavy oil and oil sands.

(Top Pick Dec 10/12, Down 4.73%) Thinks they have turned the corner. They have good quality projects underway.

Market reaction has been a little too harsh. Having some operational issues at one of their flagship oil sands properties, Foster Creek. Steam oil ratios are a little higher so is costing a little more. Believes the underperformance of the stock versus the peer group is about 16% in the last year and therefore it is a good buying opportunity. Has a tremendous premium to the peer group because of the long life, high-quality oil assets. Dividend yield of 3.09%.

Haven’t kept pace with their peers recently. Had issues with rising costs in their key operations, but when you look 3-4 years away, it continues to be a very well run company, having low-cost oil sands production. Also, have one of the better reservoirs. Costs have come up, but are under control and scheduled to come down. Should continue to grow on a per-share basis.

One of four he holds. Likes it broadly. Operating results have not been as expected. Their last couple of quarters showed increasing costs but management thinks they will get back down to historical numbers over time. Dividend is well funded. Some of the best producing properties. He sees rising dividends. The WTI differential will be a problem for a year or so but not beyond.

Increased their dividend by about 10% this year and feels the dividend increase in 2014 will either be less or delayed. Have 2 challenges out there right now. Their SAGD operations where the steam ratio has moved up a little and they have to work to get that back down. Their short-term problem is with the refining side on their US joint venture where refining margins are being squeezed. These are temporary problems and he is sticking with it.

(Top Pick Nov 5/12, Down 8.13%) It has been a tough market and the TSX has underperformed. He sold it. Supposed to be a core holding but the costs went up and he had to get out. Moved into SU-T

(A Top Pick Dec 10/12. Down 8%.) Missed a couple of quarters. Part of it was that they had positioned themselves that they couldn’t do any wrong having the best reservoirs, best steam oil raid shows (?), great management. Thinks they now have their act together and he is looking for some very strong quarters. 3.25% yield.

Had liked this because he felt this was a company that had great assets and were really concentrating on cost structure, etc. Lately he has found that from a cost perspective, they weren’t as conscientious. Missed some numbers over the last little while. Sold his holdings and moved into Suncor (SU-T), which is a better play here.

(Market Call Minute) Stay away until they get Foster Creek issues resolved. US short community is active in the stock.

Does this benefit if the spread between the WCI and Canadian narrow or expand? Yes it does. About a month ago he was very bearish on oil but he likes the current level a lot better. This used to be the jewel with every earnings report being gangbusters, cash flow had increased and production had increased. Last report was not that good and he thinks the shine was off the armour. However, it is still one of Canada’s premier oil companies. Not the one he would be buying but has no problem with the stock at this point. Prefers oil that is not from the oil sands.

If you are comfortable with his outlook that growth is likely to continue relatively strong, then economically sensitive economies like Canada should do well and materials stocks should do well which means energy and materials stocks should do well. This one hasn’t been a great performer over the last year and is still well below where it was 2-3 years ago, despite the fact that it is executing quite well.

Very well-positioned in the oil sands. Very predictable growth going forward. A lot of their projects are just ramping up now. He expects there is going to be more and more commercial production. Demand for bitumen should be picking up over the next few years. 3% dividend yield.

A great Canadian energy company. Return on equity has not been good in Western Canada but these guys have a 14% ROE. Production is going up and have raised their dividend 10% a year for the last two years. 3.14% yield. Well positioned and disciplined management team. You are buying it relatively cheap here.

$29.90 model price, negative 3.5% differential. Certainly there is better value elsewhere.