Cenovus Energy (CVE.TO)

Range-bound. Downstream challenges with a number of refineries, now rectified. Almost a 10% position for him. Large cap, plus about to hit debt target. 30 years of inventory yielding 13%. Should be 62% upside from here.

Debt reduction taking longer. Should hit debt target in July/August, give or take. Will then pivot to 100% free cashflow back to shareholders. Doesn't see increase in dividend. Trades at discount to peers. Target of $43, 58% upside. His favourite large cap, about 9.5% weighting.

Very good Q1. Likes management and assets. Long-life assets, refining business, downstream and upstream, balance sheet exciting as it keeps achieving its debt metrics. In Q3, going to 100% capital return to shareholders. 

Caveat: on cusp of seasonal weakness for oil and gas, which can continue through June, July, sometimes into August. If you're a long-term investor, buy and don't look at it until next Dec-Jan, and it could be up if O&G markets are steady. If you're more technical, buy during the upcoming lull.

The only large-cap he likes and feels good heading into their quarter. Have improved and fixed their refinery problems. Should pay off their debt by Q2 or Q3, which will trigger share buybacks. Boasts a good 13% free cash flow yield. He sees 50% upside.

Was under pressure last year because refineries needed investments, which CVE swiftly did, so capacity is up. That's when he bought. Shares and valuation have since risen. They have a lot of exposure to the WCS-WTI price differential that the as the pipeline expansion will come online--an opportunity. Also, they are lowering debt. Could be a dividend bump or share buybacks to come.

Large-cap energy producer, underperforming the group. He owns ARX and SU, both with dividend growth and returning capital to shareholders. Won't go wrong with it, but better names.

See his Top Picks.

Disappointing. They've struggled with downstream operations, frustrating investors, and are working to fix this. He expects them to reach their debt target in August, then they will pivot to 100% free cash flow. $43 target price of 57% upside. Trimmed his holding slightly. Trades at a discount to CNQ.

Likes the energy sector: great fundamentals, will generate free cash flow. CVE has benefited from rising oil prices. This is positioned well for 2-3 years.

That's a pretty short timeframe, so where it goes could be largely determined by commodity price. Longer term, low-cost, long-life production base to draw on. In production growth phase, tailing off in 4 years. Reasonable choice.

Editor's Note - This past pick was not the common stock but the corporate bond. The total return is a bit mis-leading due to the nature of bonds, and is actually higher than shown. In general, corporate bond spreads are very tight now due to the fact that there is no supply and too much demand. There is not as much corporate debt out there.

With energy companies, you really have to be comfortable with commodity price and OPEC manipulation. Oil prices seem to have settled, nat gas prices soft. Compared to peers, it's cheaper, better production growth and cashflow growth. Pretty good deal here. Slower debt reduction is not of much concern with current oil price.

Treated poorly in the market, but company has excellent management team. High quality assets. Ability to buy assets in the market. Quality of upstream and downstream assets good. 

Excellent company that is top holding in portfolio. Excellent management team with executing. Believes stock buybacks will commence within next month or two. Between 75%-100% free cash flow will be dedicated to return of capital. Excellent assets in oil sands and refineries. Will continue to hold and buy more. 

We do not think Trans Mountain will influence values much. Prices, with global influences, will continue to have a bigger impact. The stock is cheap at 8X earnings and offers a decent, growing dividend. It is one of the few in the sector expected to see per-share growth in '24, in the 20% or so range. Debt is down to 1X cash flow and the share count continues to decline. 3Q results were strong, with good growth and lower debt, though refining margins remain a possible negative variable. Overall, though, it looks fine to us. 
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For Baytex there is some consolidation here due to some nervousness re the price of oil. Cenovus is similar to Baytex and has dropped to the consolidation level. It could go to the $20 level in the next 3 to 6 months. Don't buy energy now since it could retrace much of its big gains.