We recently published a list of 7 Best Oil Stocks under $20. In this article, we are going to take a look at where Cenovus Energy Inc. (NYSE:CVE) stands against the other best oil stocks under $20.
The oil industry has long been criticized for its contributions to greenhouse gas emissions and global warming. Despite these concerns, oil remains a critical commodity in today’s world as it has historically played a pivotal role in the global industrial, household, and power sectors.
The dynamics of the oil market shifted dramatically two years ago following Russia’s invasion of Ukraine. Western sanctions on Russia, combined with efforts by European nations to reduce reliance on Russian crude, disrupted global supply chains and drove oil prices to record highs. As mentioned in our previous article ‘10 Best Oil Stocks Under $20’, prices soared to $119 per barrel in March 2023. The impact of sanctions remains, as Russia’s monthly revenue from seaborne crude oil registered a significant 15% decline in May 2024 compared to the previous month, as reported by The Centre for Research on Energy and Clean Air.
Demand and Supply in the Oil Market
According to the International Energy Agency, the global oil industry faces a challenging landscape, with slow demand growth coupled with supply chain disruptions. In the first half of 2024, the demand grew by just 800,000 barrels per day (kb/d), which is the slowest increase since 2020. The main contributor to this declining demand is the consistent drop in China’s consumption in the past four months. The trend in 2024 contrasts with the 2.1 million barrels per day (mb/d) surge in demand seen in 2023. The slowdown in China’s economy, combined with the shift towards electric vehicles, has driven the decline in global consumption.
On the other hand, the global supply increased in August by 80 kb/d, jumping to 103.5 mb/d. This surge was bolstered by high outputs from countries including Brazil and Guyana. This high demand balanced the production outages in Libya as well as maintenance-related slowdowns in Norway and Kazakhstan. However, OPEC+ countries are expected to face challenges, with supply projected at 810 kb/d by the end of 2024.
Although weaker-than-expected performance in China and falling margins in Europe are putting pressure on refinery activities, refinery output is expected to increase by 440 kb/d in 2024. Moreover, oil prices have declined, with Brent falling by over $10 per barrel in August and early September. This was mainly driven by concerns about Chinese demand, coupled with oversupply fears, according to IEA.
Despite challenging circumstances, companies are positioning themselves to align with shifting market dynamics. As a result, the crude oil industry is expected to surge at a compound annual growth rate (CAGR) of 1.8% until 2030, with an expected valuation of $1.6 trillion, according to Maximize Market Research.
Performance of Oil Stocks
Following the decline in oil prices, energy sector stocks have also delivered a mixed performance. The Energy sector surged by 13.3% on a year-to-date basis through July 2024. However, it still lagged behind the broader index by 3%. Thus, with a rapidly changing global scenario, energy sector stocks are expected to see swift movements in the near future.
Methodology
For this list, we scanned the Finviz screener and selected companies involved in the oil industry, focusing on areas relevant to oil production and its products. From that list, we selected companies with share prices under $20 as of September 24, 2024.
Among those, we chose seven companies with the highest number of hedge fund holdings and ranked them in ascending order based on these holdings, as of Q2 2024. Hedge fund data was sourced from Insider Monkey’s hedge fund database, which tracks the activity of 912 hedge funds.
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).
A fleet of oil tankers at sea, representing the global reach of a crude oil supplier.
Cenovus Energy Inc. (NYSE:CVE)
Number of Hedge Funds Holders: 46
Share Price: $17.11
Cenovus Energy Inc. (NYSE:CVE) is an integrated oil and gas company engaged in the exploration, production, refining, and marketing of crude oil, natural gas, and other petroleum products. It is a key player in the energy sector, operating across the segments of oil sands, conventional resources, and offshore drilling in Canada and the United States. The company’s diverse portfolio includes the Christina Lake, Foster Creek, and Sunrise projects.
Cenovus Energy Inc. (NYSE:CVE) reported an operating margin of $2.9 billion in Q2 2024, primarily driven by higher oil prices and strong oil production. The adjusted funds flow reached $2.4 billion, while the free funds flow reached $1.2 billion for the quarter. This allowed the company to invest $1 billion in dividend payments and share buybacks during the quarter.
It produced 610,000 barrels per day (bpd) from its oil sands assets, generating an operating margin of $2.7 billion, up by $500 million from the previous quarter. This increase is attributed to effective cost control and stable production.
However, earnings per share (EPS) for the quarter stood at $0.53, down by $0.90 per share. The company faced some operational hurdles during Q2; particularly, wildfires across Northern Alberta forced it to reduce staffing. Additionally, the planned production at Christina Lake and the Lloydminster upgrade experienced some production downtime. Moreover, the Christina Lake turnaround is also expected to reduce third-quarter production by 45,000 bpd. Therefore, the stock has declined by nearly 14% over the past month.
Despite the challenges, Cenovus Energy Inc. (NSYE:CVE) delivered significant progress in its key oil sands growth projects. The Narrows Lake tie-back to Christina Lake is 88% complete with the first oil from the Narrows Lake anticipated by mid-2025. Moreover, Sunrise is progressing well with two new pads expected to come online by early 2025.
Given the growth prospects, 46 hedge funds have collectively invested $1.2 billion in the company as of Q2 2024, according to Insider Monkey’s database. Thus, CVE makes it to our list of the best energy stocks under $20 to buy.
Overall CVE ranks 2nd on our list of best oil stocks to buy under $20. While we acknowledge the potential of CVE as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. 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.
READ NEXT: $30 Trillion Opportunity: 15 Best Humanoid Robot Stocks to Buy According to Morgan Stanley and Jim Cramer Says NVIDIA ‘Has Become A Wasteland’.
Disclosure: None. This article is originally published at Insider Monkey.