If US$100+ Happens, This Energy Stock Could Be a Multi-Bagger

Cenovus Energy Inc. (TSX:CVE)(NYSE:CVE) is an overly beaten-up stock that could soar in the new high-price oil environment.

| More on:

After many years in the doghouse, oil’s unexpected rally has prompted reignited interest in many of Canada’s unloved energy stocks. Although oil prices have rebounded in a big way, the stocks of many Canadian oil producers have yet to bounce back at a similar magnitude, leaving ample upside potential for energy investors as energy stocks look to catch up to the new higher price of oil that’s currently just south of US$70 at the time of writing.

With energy stocks outperforming marijuana stocks in recent months, it’s clear that the next “sexy play” could be energy stocks as speculators start piling onto the bandwagon as oil continues inching toward the US$100 level.

There’s no telling how much higher West Texas Intermediate (WTI) prices will rise from here. Donald Trump clearly isn’t the fan of higher oil prices, nor does he approve of the OPEC cartel. Given this, he could certainly make moves to derail oil’s rally right now.

On the other end of the spectrum, Pierre Andurand, a bullish hedge fund manager, noted that oil at US$300 a barrel is “not impossible” within the next few years should oil prices not climb fast enough. Andurand believes that the unwillingness of firms to turn on the taps in new production growth may result in the largest supply shock ever as demand creeps up, catching everybody off-guard.

Farfetched as it sounds, US$300 oil isn’t impossible, although investors would have laughed at that figure a few months ago.

The reluctance of oil firms to invest in new growth initiatives could certainly fuel a massive rally over the medium-term, especially if Donald Trump stepped in to try to bring down what he deems an “artificially high” price.

Although renewable energy firms are picking up steam, it’s important to remember that we’re not close to an environment in which the planet can completely rely on sustainable sources of energy. As such, demand could certainly pick up and co-exist in an era in which renewables continue to gradually reduce dependence on fossil fuels.

Personally, I think US$300 oil is as ridiculous as it sounds, but even if oil were to break the US$100 mark, it would be more than enough for many oil sands producers to turn on the taps on new projects and become substantially more profitable as the operating environment becomes more economical. If prices were to stabilize at the US$100 levels, Cenovus Energy Inc. (TSX:CVE)(NYSE:CVE) could easily become a multi-bagger over the next five years, even if the wide WCS-to-WTI discount persists.

With its promising assets and new cost-effective extraction methods in the works, I think earnings could really rocket higher under the right industry conditions.

At US$100 oil, Cenovus would be able to fire on all cylinders with its new growth operations; as its costs gradually decrease, the company would really be in great shape to rebound — potentially back to all-time highs should a higher oil price environment be here to stay.

Stay hungry. Stay Foolish.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Joey Frenette has no position in any of the stocks mentioned.

More on Energy Stocks

man touches brain to show a good idea
Energy Stocks

1 No-Brainer Energy Stock to Buy With $500 Right Now

Should you buy a cyclical energy stock at its decade-high? Probably not. But read this before you make a decision.

Read more »

A solar cell panel generates power in a country mountain landscape.
Energy Stocks

Top Canadian Renewable Energy Stocks to Buy Now

Here are two top renewable energy stocks long-term investors can put in their portfolios and forget about for a decade…

Read more »

oil and gas pipeline
Energy Stocks

Where Will Enbridge Stock Be in 3 Years?

After 29 straight years of increasing its dividend and a current yield of 6%, here's why Enbridge is one of…

Read more »

Pumpjack in Alberta Canada
Energy Stocks

Is Enbridge Stock a Buy, Sell, or Hold for 2025?

Enbridge stock just hit a multi-year high.

Read more »

oil pump jack under night sky
Energy Stocks

Where Will CNQ Stock Be in 3 Years?

Here’s why CNQ stock could continue to outperform the broader market by a huge margin over the next three years.

Read more »

engineer at wind farm
Energy Stocks

Invest $20,000 in This Dividend Stock for $100 in Monthly Passive Income

This dividend stock has it all – a strong outlook, monthly income, and even more to consider buying today.

Read more »

A worker overlooks an oil refinery plant.
Energy Stocks

Is Imperial Oil Stock a Buy, Sell, or Hold for 2025?

Valued at a market cap of $55 billion, Imperial Oil pays shareholders a growing dividend yield of 2.4%. Is the…

Read more »

Pumpjack in Alberta Canada
Energy Stocks

Where Will Imperial Oil Stock Be in 1 Year?

Imperial Oil is a TSX energy stock that has delivered market-thumping returns to shareholders over the last two decades.

Read more »