Cenovus Energy (CVE.TO)

It is hard to predict the oil price in a year out. They are now making so much money and the debt is coming down. It's a massive company. Debt is a concern after the Husky purchase but debt is coming down quickly. (Analysts’ price target is $15.79)

Only large cap name he holds in the fund. The on-going asset sales from the Husky purchase is a catalyst. They are well down the path of selling them to pay down debt. Once this is done, they should initiate a share buyback. Deep value with a catalyst for a re-rate.

Husky deal was reasonably priced and strategically sensible. Exploration and production is out of favour, especially the small players. Canada is hostile to oil right now. Rise in ESG investing increases cost of capital. Oil at the top of its $40-80 trading range puts a lid of profit for the producers.

Ridiculously miss priced. Core focus is deleveraging the balance sheet. Looking strongly at monetizing non-core assets from the Husky acquisition. The stock is trading at 3.5x cashflow at current prices with 35% free cashflow yield. Using a 6x multiple, it can be a double. (Analysts’ price target is $12.75)

This is one of two oil large-caps he owns. CVE reported an inline quarter today, including taking a charge on the Keystone XL. At $60 oil, CVE is targeted at 19% free cash flow yield. They diluted some upside when they bought Husky Energy, but there are likely some assets in Husky to delever CVE. Large caps like this have really lagged the rise in oil prices but will bounce back. Doesn't know why it's getting pressured today, but he isn't worried. The merger with Husky means CVE is committed to paying down that debt, which he expects to reach a market average for debt by end of 2021.

HSE-T + CVE-T: Stay after the merger? He does not own either one. He understands the merger makes sense. There are a lot of cost savings that can be found. He prefers CNQ-T, PXT-T and one of his Top Picks today. He prefers these to HSE-T. If the sector bounces back you could get an uplift.