We recently compiled a list of the 10 Most Profitable Value Stocks To Invest In. In this article, we are going to take a look at where Cenovus Energy Inc. (NYSE:CVE) stands against the other most profitable value stocks to invest in.
Rotating Back to Value Sectors is the Better Option
Value investing is essentially focused on looking at stocks trading at a discount to their intrinsic value. Such stocks happen to be more mature, less volatile, and have strong fundamentals. 2024 has been significant for defensive and value stocks, especially considering that growth stocks have been trading at high valuations all year round. Analysts expect the Magnificent Seven to shed their valuation significantly and investors continue to remain cautious amid a turbulent market environment.
On October 22, Brian Mulberry, Zacks Investment Management client portfolio manager, joined Wealth! on Yahoo Finance to discuss his market thesis and share why he prefers value stocks over growth stocks under the current macroeconomic backdrop. The S&P 500, in terms of the broader market, is currently trading at 22 times its forward earnings. Speaking of the magnificent seven, their valuations are getting a bit “top-heavy” and have been consistently trading between the mid to high 30s, adds Mulberry.
READ ALSO: 10 Stocks with Consistent Growth to Buy and 8 Most Undervalued Value Stocks To Buy According To Analysts.
On the flip side, looking at utilities’ earnings growth and forward P/E, these companies are trading at a FWD P/E of only 9 or 10. Additionally, within these sectors, multiple better-performing individual stocks are expected to post sustainable or “durable earnings growth.”
Mulberry suggests that investors can do much better at current valuation levels if they are rotating back to some traditional sectors and value stocks. He adds that the big banks also expect to report strong earnings and will continue to do so as the interest rates go down even further in 2025.
Value stocks not only have stronger fundamentals, but they also have legacy businesses with sustainable business models. With the current backdrop of uncertainty, many analysts and strategists alike believe that low-risk and value businesses are the best bets for investors. That said, let’s take a look at the 10 most profitable value stocks to invest in.
Our Methodology
To come up with the 10 most profitable value stocks to invest in we used the Finviz stock screener to identify stocks in value-oriented sectors like consumer staples, financials, energy, healthcare, and more, with forward PE ratios of less than 15, positive 10-year revenue growth rates, and positive trailing 12-month net income. We then examined the hedge fund sentiment of each stock and picked the most popular ones. Our list is in ascending order of the number of hedge fund holders as of Q2 2024 primarily and 10-year revenue growth rates, forward P/E, and TTM net income secondarily.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
An aerial view of the energy producing facility, highlighting its potential of providing utilities to the public.
Cenovus Energy Inc. (NYSE:CVE)
Number of Hedge Fund Holders: 46
Forward P/E as of October 23, 2024: 10.6
10 Year Revenue Growth Rate: 10.7%
Trailing 12 Month (TTM) Net Income (June 30): $3.51 Billion
Cenovus Energy (NYSE:CVE) is one of the most profitable value stocks to invest in. The company is based in Canada and is engaged in the production and exploration of natural gas and crude oil. The company owns several oil and gas fields and operations in oil sands and refining.
Cenovus Energy Inc. (NYSE:CVE) has multiple projects lined up. Its new pipeline to Christina Lake is expected to be operational by the end of 2024 and will be able to deliver oil by the middle of 2025. In addition to that, the company also initiated two well pads at Sunrise, expected to be completed by the end of this year.
During the second quarter of 2024, the company produced an average of 800,800 barrels of oil per day. As for its crude oil, the company’s refineries produced an average of 568,900 barrels per day, up by 17,800 barrels from the previous quarter.
By June 30, Cenovus Energy (NYSE:CVE) had a net debt worth of $4.26 billion, and in July the company managed to achieve its target of $4 billion. Consequently, the company will now be able to level up its returns to its shareholders, explaining why 46 hedge funds were bullish on the stock at the close of Q2 2024, according to Insider Monkey’s database.
The company is an important player in the energy segment. Cenovus Energy (NYSE:CVE) is currently trading at 10.6 times its forward earnings, a discount of 11% to the sector median, and analysts expect CVE to grow its earnings by 4.5% this year. Analysts are also bullish on the stock and their median price target represents an upside of 37% from current levels.
L1 Capital L1 Long Short Fund stated the following regarding Cenovus Energy Inc. (NYSE:CVE) in its first quarter 2024 investor letter:
“Cenovus Energy Inc. (NYSE:CVE) (Long +20%) shares performed strongly as the WTI oil price increased 16% to ~US$83/bbl, while refining margins in the U.S. Midwest improved dramatically from a low base. During March, Cenovus’s 2024 investor day was well received, where its 5-year outlook for the business included growth in upstream production of around 150m bbl/d above the current 800m bbl/d and a material turnaround of its downstream refining business. Over the next five years, the company expects to generate C$32b of cumulative free cash flow based on a US$75/bbl WTI oil price, a highly attractive prospect given its current market cap of ~C$51b. Furthermore, it has committed to return 100% of excess cash flow back to investors once it reaches its C$4b net debt target (expected in 2024). Cenovus’s strong cash flow generation, combined with the long-life nature of its oil sands assets and its low cost of production, make it one of our preferred Energy exposures.”
Overall CVE ranks 8th among the 10 most profitable value stocks to invest in. While we acknowledge the potential of CVE as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than CVE but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.