We recently compiled a list of the 8 Best Bargain Stocks To Buy in October. In this article, we are going to take a look at where Cenovus Energy Inc. (NYSE:CVE) stands against the other bargain stocks.
The Aftermath of an Easing Cycle
September has historically been sluggish for stocks. However, with an easing cycle and an upcoming election in store, the results this year may be untypical. On September 26, Tom Lee, Fundstrat Global Advisors managing partner and head of research, appeared in an interview on CNBC to discuss the market outlook ahead of the easing cycle.
Lee suggests that an easing cycle indefinitely improves the performance of markets, especially from a historical standpoint, hinting that with 40 days to the election, the market may change its course of action accordingly. While stocks reposition themselves positively after an easing cycle, the markets may see delays, especially because investors are more likely to wait until after the results are out.
Lee added that rallies in November and December will be significantly high, especially when markets have been up more than 10% in the first half of the fiscal year 2024. While the economy is not officially in a recession, the number of investors and analysts who believe the economy is going down is immense. Therefore, to get investors on the move evidence has to be better than expected.
What do the Elections Mean for Markets?
The 50 basis point cut may have redeemed positive results for the market. On September 28, Matt Powers, Powers Advisory Group managing partner, appeared in an interview on Yahoo Finance to discuss the plausible sectors to target as elections approach.
Powers shared that inflation numbers validated the 50 basis point cut, showing positive economic signs. However, he does reiterate that there will be some short-term volatility, especially in October.
According to him, investors must focus more on stocks in the defensive sectors, including utilities, consumer staples, and financials. Powers advises investors to spare some short-term equity but focus on long-term and medium-term results. Overall, he believes that the market is more balanced and a reallocation to the dividend stocks and dividend ETFs is highly probable.
Now that we have studied the aftermath of the easing cycle and the market outlook before an impending election, let’s take a look at the 8 best bargain stocks to buy in October according to analysts.
Our Methodology
To come up with the best bargain stocks in October, we used the Finviz screener to find stocks trading at a forward P/E of less than 20. We sorted our screen by market cap and went through the 30 biggest stocks. We then shortlisted the stocks that were the most popular among hedge funds, as of Q2 2024, and that analysts saw the most upside to. The stocks are ranked in ascending order of analysts’ upside potential.
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)
Forward P/E as of September 28, 2024: 9.19
Analyst Upside Potential as of September 28, 2024: 46%
Number of Hedge Fund Holders: 46
Cenovus Energy (NYSE:CVE) is one of the best bargain stocks to buy now. The company is based in Canada and is engaged in the production and exploration of natural gas and cruise oil. The company owns several oil and gas fields and operations in oil sands and refining.
During the second quarter of 2024, the company produced an average of 800,800 barrels of oil per day. As for its crude oil, the company’s refineries produced an average of 568,900 barrels per day, up by 17,800 barrels from the previous quarter.
The Canadian entity managed to achieve significant milestones during the quarter. Its new pipeline to Christina Lake is expected to be operational by the end of 2024 and will be able to deliver oil by the middle of 2025. In addition to that. Cenovus Energy (NYSE:CVE) initiated two well pads at Sunrise, expected to be completed by the end of this year. As for its ongoing West White Rose project, the structure reached its final height, and part of the construction was completed.
Overall, the company is not only a rising star, but it is also performing well financially. By June 30, Cenovus Energy (NYSE:CVE) had a net debt worth of $4.26 billion, and in July the company swiftly achieved its target of $4 billion. As a result of this achievement, the company will be able to level up its returns to its shareholders.
The company is an important player in the energy segment and an investor favorite. The company strongly believes in giving back to its shareholders, as evidenced by its returns in the previous quarter. Such explains why 46 hedge funds were bullish on the stock at the end of Q2 2024.
L1 Capital L1 Long Short Fund stated the following regarding Cenovus Energy Inc. (NYSE:CVE) in its first quarter 2024 investor letter:
“Cenovus Energy Inc. (NYSE:CVE) (Long +20%) shares performed strongly as the WTI oil price increased 16% to ~US$83/bbl, while refining margins in the U.S. Midwest improved dramatically from a low base. During March, Cenovus’s 2024 investor day was well received, where its 5-year outlook for the business included growth in upstream production of around 150m bbl/d above the current 800m bbl/d and a material turnaround of its downstream refining business. Over the next five years, the company expects to generate C$32b of cumulative free cash flow based on a US$75/bbl WTI oil price, a highly attractive prospect given its current market cap of ~C$51b. Furthermore, it has committed to return 100% of excess cash flow back to investors once it reaches its C$4b net debt target (expected in 2024). Cenovus’s strong cash flow generation, combined with the long-life nature of its oil sands assets and its low cost of production, make it one of our preferred Energy exposures.”
Overall CVE ranks 3rd among the 8 best bargain stocks to buy in October. 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 time frame. 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.