Investors who missed the 2025 rally are wondering whether the dip is a good opportunity to add CVE stocks to a Self-Directed Tax Free Savings Account (TFSA) or Registered Retirement Savings Plan (RRSP) portfolio.
Cenovus stock price
Cenovus is trading near $23 per share at the time of writing. It was as high as $26 in November and fell to $22 yesterday amid the rout in the Canadian energy sector.
Investors dumped Canadian oil sands producers after the United States captured Venezuela’s president and brought him to New York to face charges of narcoterrorism. The US subsequently announced plans to significantly increase Venezuela’s oil production in the coming years.
Venezuela’s oil is comparable to the oil produced in Alberta. An increase in production from Venezuela could potentially replace the oil sent by Canadian producers to U.S. refineries. This is why Canadian energy stocks took a hit on the news.
It is important to consider the long-term risks. Cheaper oil from Venezuela would potentially lower the price Canadian producers receive from U.S. buyers. This would put pressure on margins and profits. However, the market reaction is likely exaggerated.
Analysts say it will take an investment of as much as $100 billion to get Venezuelan oil production back to its historic peak. American oil companies should have guarantees that their investments will be protected from nationalization. This assumes that the country will eventually be stable enough to make the investments at all, and that oil prices will be high enough to deliver the required returns.
There are many unknowns that could derail the plan, or at least extend the timeline.
Is Cenovus stock a buy?
Cenovus recently won an intense bidding war to buy MEG Energy for $8.6 billion. The deal was completed last November, immediately adding 110,000 barrels per day (bbls/d) of production and strategic oil sands reserves adjacent to existing Cenovus sites. The proximity of the assets should result in meaningful synergies that enhance value in the coming years.
Investors might worry that the company paid too much for MEG in light of the new potential risks of increased production in Venezuela. Time will tell, but the MEG deal should be positive for investors in the long run.
Cenovus also has conventional and offshore oil production, as well as refineries. These assets provide cash flow diversification and should help offset the potential risks of events in Venezuela.
Weak oil prices will likely pose a bigger threat to the stock price in the coming year. The global oil supply is growing faster than demand. The current surpluses in the oil market are expected to continue for some time. This will be a headwind for oil prices until the market returns to equilibrium.
On the plus side, there could now be additional impetus from the Canadian government to get a new oil pipeline built to connect producers to the coast. New export capacity that allows sales to international buyers would benefit Cenovus and its peers and could offset any risks of increased supply from Venezuela to the US.
At the current share price, investors could consider taking a small position for a buy-and-hold portfolio and magnifying any further weakness. Short-term volatility is expected, but the long-term outlook should be positive for CVE from this level.
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