We recently published a list of 7 Cheap Canadian Stocks To Invest In. In this article, we are going to take a look at where Cenovus Energy (NYSE:CVE) stands against the other cheap Canadian stocks to invest in.

According to the report Economic Outlook Canada Q4 2024 by S&P Global on September 24, Canada’s economy has been showing signs of improvement recently, but the growth is expected to remain below the country’s potential. The country’s GDP growth is expected to be 1.2% in 2024, which is a modest increase from the previous year. However, this growth rate is still short of the country’s potential growth rate of 1.8%, indicating that the economy is not growing at its full capacity.

The labor market also shows signs of softening, with weaker hiring and rising unemployment. This is a cause for concern, as a strong labour market is essential for driving economic growth. The unemployment rate is expected to rise to 7% by the end of 2024 before falling in 2025. This increase in unemployment will likely have a ripple effect on the economy, as higher unemployment rates can lead to reduced consumer spending and decreased economic activity.

Another area of concern is the relationship between wage growth and productivity growth. Wage growth is currently outpacing productivity growth, which is inconsistent with the 2% inflation target. This means that wages are increasing at a faster rate than the rate at which workers are producing goods and services. This can lead to higher production costs and reduced competitiveness for Canadian businesses.

Despite these challenges, the Bank of Canada (BoC) is shifting its focus to downside risks to the economic growth outlook. The BoC has already cut interest rates for the third consecutive time in an effort to stimulate the economy. Further interest rate cuts of 25 basis points are expected in the fourth quarter and January. These interest rate cuts are intended to make borrowing cheaper and encourage businesses and consumers to invest and spend.

The recovery in 2025 is expected to be driven by fixed investment, particularly residential and non-residential investment. This is a positive sign, as fixed investment is an important driver of economic growth. However, consumer spending is expected to remain subdued due to the effect of higher interest rates. Higher interest rates can make borrowing more expensive, reducing consumer spending and slowing economic growth.

Another key factor that will impact the economy is changes to immigration policies and their effectiveness. Immigration has been an important driver of economic growth in Canada, as it brings in new workers and skills to the labor market. However, changes to immigration policies can impact the number of immigrants coming to Canada and their ability to contribute to the economy.

Canada’s Economy Poised to Catch Up with US

James Orlando, a senior economist at TD Bank, is bullish on Canada’s economic growth prospects, particularly in the wake of the Bank of Canada’s recent interest rate cuts. He believes that this change in interest rate policy could be the catalyst that helps Canada close the economic growth gap with the United States. For years, Canada’s economic growth has trailed behind that of the US, but Orlando thinks that the rate cuts could be the turning point.

According to Orlando, the Canadian economy is highly sensitive to interest rate fluctuations, especially in the housing market. With a high level of debt and a reliance on variable-rate mortgages, Canadians are particularly vulnerable to changes in interest rates. However, with the recent rate cuts, Orlando expects to see a surge in investment in the housing market, which could lead to improved affordability. Orlando is confident that the rate cuts will stimulate economic growth and create new job opportunities.

The Canadian economy is also poised to benefit from increased investment in key areas such as the green transition and electric vehicle production. With a growing population and a need for more housing, Orlando anticipates a significant increase in investment in the housing market and other sectors. As the economy continues to grow, Orlando expects to see a rise in consumer spending, which will further fuel economic growth. While challenges still lie ahead, Orlando is optimistic that the Bank of Canada’s rate cuts and the resulting economic stimulus will drive growth and create jobs in the Canadian economy.

Canada’s economy is expected to experience modest growth in the coming years, driven by fixed investment and a soft labor market.

Our Methodology

To compile our list of  7 cheap Canadian stocks to invest in, we used the Finviz and Yahoo stock screeners to find the largest Canadian companies. From that list, we screened for companies that are trading at a forward P/E ratio of under 20 as of September 28. We then narrowed our choices to 7 stocks according to analyst upside potential. The list is sorted in ascending order of their upside potential as of September 28.

Why do we care about what hedge funds do? 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).

Cenovus Energy (NYSE:CVE)  

Upside Potential: 39.70%  

Forward P/E Ratio as of September 28: 9.00

Number of Hedge Fund Investors: 46

Cenovus Energy (NYSE:CVE) is a Canadian oil company focusing on oil sand production and refining. The company owns a diverse asset base that spans Western Canada, the United States, and other international locations. Cenovus Energy (NYSE:CVE) operations include conventional oil and gas fields, oil sands, and a refining segment, which comprises two refineries in the United States.

In Q2, Cenovus Energy (NYSE:CVE) delivered a production beat, producing 800,800 barrels of oil equivalent per day, exceeding consensus expectations. The company also upgraded its guidance for downstream performance for the second half of the year. This positive outlook is further enhanced by the company’s high free cash flow yield, which is significantly higher than its peers.

Cenovus Energy (NYSE:CVE) has achieved its net debt target of $4.0 billion and is now shifting its focus towards returning value to shareholders. As part of this strategy, the company will allocate 100% of its excess free cash flow towards share repurchases, which will not only reduce its share count but also increase earnings per share. This move is expected to create long-term value for investors.

Cenovus Energy (NYSE:CVE) presents an attractive investment opportunity for those seeking a high-quality energy company with strong growth prospects. The company’s stock is trading at a forward PE of 9, a 19.79% discount to its sector median of 11.22. Industry analysts have a consensus on the stock’s Buy rating, setting an average share price target at $24.36, which represents a 39.4% upside potential from its current level.  In the second quarter, Cenovus Energy’s (NYSE:CVE) stock was held by 46 hedge funds with stakes worth $1.21 billion.

Overall CVE ranks 1st on our list of cheap Canadian 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 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.

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Disclosure: None. This article is originally published at Insider Monkey.