2. Cenovus Energy Inc. (TSX:CVE.TO)
Number of Hedge Fund Holders: 42
Cenovus Energy Inc. (TSX:CVE.TO) was founded in 2009 and is headquartered in Calgary, Canada. The company develops, produces, and markets crude oil, natural gas liquids, and natural gas in Canada, the United States, and the Asia Pacific region. The company operates through Oil Sands, Conventional, Offshore, Canadian Manufacturing, U.S. Manufacturing, and Retail segments. Cenovus Energy Inc. (TSX:CVE.TO) is one of the premier TSX stocks to buy.
On October 19, Jefferies analyst Lloyd Byrne initiated coverage of Cenovus Energy Inc. (TSX:CVE.TO) with a Buy rating and a C$35 price target. He believes the “Option Value” of energy is up again, supported by a restricted capital cycle. While this is most apparent in oil and gas, it is also evident in energy transition firms, noted the analyst, who believes energy’s “Option Value can stay higher for longer” without a meaningful increase in investment across the industry.
According to Insider Monkey’s data, 42 hedge funds held stakes worth $2.90 billion in Cenovus Energy Inc. (TSX:CVE.TO) at the end of the second quarter of 2022, compared to 44 funds in the prior quarter worth $2.4 billion. Eric W. Mandelblatt’s Soroban Capital Partners is the biggest position holder in the company, with 50.3 million shares worth about $957 million.
Here is what L1 Capital specifically said about Cenovus Energy Inc. (TSX:CVE.TO) in its Q2 2022 investor letter:
“MEG Energy and Cenovus Energy Inc. (NYSE:CVE): We continue to remain positive on the outlook for Energy. While a potential U.S. recession would result in softer oil demand, we believe this would be more than outweighed by China reopening over the coming year (which would see a major lift in car and air traffic). Oil supply continues to remain constrained with sustained declines in global inventories and OPEC+ remains unable to grow production significantly. With the sell-off in energy stocks, MEG and Cenovus are currently generating more than 20% of their market cap in cash flow with large dividends and share buybacks to come.
Cenovus Energy (Long +14%) shares rallied, driven by continued strong free cash flow generation, as well as being positioned to benefit from strong refining margins and downstream operations. The company recently announced a significant increase in dividends, which gives us greater confidence on the potential for a 100% return of free cash flow generation via dividends and buybacks from early CY23. Given the long-life nature of its oil sand assets and its low cost of production, we estimate the company is free cash flow break-even at an oil price of ~US$40/bbl. At present, oil prices are more than double this break-even point, implying considerable upside to consensus cash flow estimates (if prices remain near current levels). There are also additional value realization catalysts with the company continuing to progress the de-gearing of its balance sheet via organic cash generation and asset sales.”
