Alert: Under-the-Radar Stock with HUGE Potential

Investment Alert: Buy Cenovus Energy (CVE) Under $15.30/share

Disclaimer: Investment Alerts have a medium to long-term time horizon. These do not constitute financial advice and you should contact a financial advisor before deciding whether it is appropriate for your individual circumstances.

There is a reason Stanley Druckenmiller did not have a down year in the 30 years he managed money. And it’s the same reason he generated returns north of 30% annually on average. He is really, really good at stock picking. So, I analyzed his top holdings now to identify which, if any, were under water from the time he made his purchases.

Not surprisingly, most are up big but one did stick out as being under water. Better yet, he increased his stake by 222% in it during the last quarter, suggesting his conviction is high. And right now, that stock is 14.7% below Stanley Druckenmiller’s Buy price, and by our estimates has significant upside too.

Key Points

• Cenovus is an integrated energy company with four segments: oil sands, conventional oil and gas, renewable energy, and marketing and trading.
• The company has a number of competitive advantages, including a diversified portfolio of assets, a strong focus on sustainability, a solid balance sheet, a track record of profitability, and an attractive dividend.
• Cenovus’s share price has fallen from its 2021 high, but Druckenmiller is betting that it is undervalued.

What Does Cenovus Actually Do?

If you’re not already familiar with Cenovus, it is an integrated energy company with four segments:

• • Oil sands
  • Conventional oil and gas
  • Renewable energy
  • Marketing and trading

The company is widely considered to have a combination of competitive advantages, including:

• • Diversified portfolio of assets
  • Solid balance sheet
  • Track record of profitability
  • Attractive dividend

Unbroken Streak of Profits

Revenues are important but profits are what matter. For Cenovus, they have both been impressive. The top line has been spectacular since early 2021:

• Q1 2021: 134.6%
• Q2 2021: 389.3%
• Q3 2021: 247.1%
• Q4 2021: 266.1%
• Q1 2022: 74.3%
• Q2 2022: 80.2%
• Q3 2022: 37.6%
• Q4 2022: 2.5%
• Q1 2023: -24.3%

In spite of that blip in the most recent quarter, operating income has been positive for 9 quarters straight.

From its 2021 low, CVE almost quadrupled to $23.99 per share. Since then it has pulled back towards $15 per share. So all that growth in 2021 and 2022 is still somewhat reflected in the share price, but so too is the recent pullback. And clearly, Druckenmiller thinks it’s overblown.

What Makes Cenovus A Buy

Another attractive aspect of Cenovus is its 2.66% dividend yield alongside a 19.54% payout ratio, suggesting it has ample room to increase the dividend over time.

The more you look, the better the financial metrics appear. Cenovus has a price/earnings ratio of just 7.5x. The balance sheet looks pretty good too, with $1.5B of cash versus $6B of long-term, not too bad for an energy company.

Then there’s one other thing that stands out. As of November 2022, the company has repurchased just under 118 million common shares at a weighted-average price of $21.19 per share. That’s a full 39% higher than where the share price currently sits. It suggests the current price is tremendously undervalued by both those with an asymmetric information advantage – management – and Stan Druckenmiller, a man with a perfect track record.