Mike Vinokur, Portfolio Manager, MV Wealth Partners
Cenovus (NYSE:CVE) is a top pick from Mike Vinokur, CFA, CMT, CFP, and portfolio manager at MV Wealth Partners.
Mr. Vinokur has been a discretionary portfolio manager since 2006 and has extensive experience in analyzing equities, bonds, preferred shares, real estate investment trusts and alternative investments.
Mr. Vinokur also teaches Economics and Portfolio Management in the MBA/CFA program as an adjunct professor at the Goodman Institute for Investment Management, part of Concordia University’s John Molson School of Business.
His enthusiasm for Cenovus (NYSE:CVE) comes from a strict value background.
“…You need to have a very strict set of buy rules, set of sell rules, a risk-management discipline, and a discipline to realize when you are wrong.
Which I believe is very hard to do because, as I always tell clients, “Why would I buy something if I thought I was wrong?”
In other words, every time we make a new purchase, we inevitably think we’re going to be right.
But the reality of it is that we know there’s a certain percentage of the time where we are going to have to admit that our thesis was wrong or our valuation was wrong, or our evaluation of management’s ability was wrong.
And the question is, I guess, what are the sets of rules and factors that one can use to come to those conclusions sooner rather than later in order to exit a position and move on to the next idea?
And I think that being a value manager, we have those rules and factors in place.
We also are very concerned about the compound annual growth rate, and what I mean by that is one can buy a security and have a double or a triple, but the question is, how long did it take that double or triple to occur?
Because if that double or triple took 20 years to occur, the compounded annual growth rate is really not very enticing.
And so one has to be very cognizant of the fact that time is an investor’s most valuable asset, but that time needs to be used in an accretive fashion so that one is not stuck in a security that in hindsight, yes, made a good return, but over the years was really not better than the return of a bond or a GIC or a CD or something like that.
I guess to conclude that thought, timing is of the essence.
Though we’re not day traders and we’re not necessarily trying to time the market, we are cognizant of timing of our entries, and of how long our positions are held on the books until they’re sold and an actual gain or loss is triggered.
And on that note, I guess I would say that I am one of approximately 400 people in the world that hold both the CFA and the CMT — chartered market technician — designation.
And so, in our practice, we are value investors at heart, but we do use technical analysis and seasonal analysis to help us manage risk in our portfolios and to try and better time our entry and our exit points.”
The overall positive economic factors also favor his Cenovus (NYSE:CVE) pick.
“I keep asking myself, is it possible that this period now 2022, 2023, would have happened, COVID or no COVID, in that you have a much bigger slice of the population that due to their wealth, has spending inelasticity regardless of the economic environment?
I’m looking at people going on cruises.
I’m looking at people traveling.
I’m hearing stories about parents and grandparents giving their children/grandchildren money.
There is a transfer of wealth going on, and I believe it’s happening before people are dying.
They want to give it to whoever it is while they’re alive.
And at the margin, this cohort of the demographic in North America and maybe in Europe has the wealth where 5% inflation, 10% inflation just doesn’t faze them anymore because they’ve come to the conclusion that they only have so many more years to live.
They’ve built up their wealth and they’re going to spend it.
And so, getting that new car or remodeling the house or buying another property or traveling or getting furniture or think of any other high-ticket, high-value item, this cohort could potentially keep on spending into the next slowdown and could actually buttress the economic cycle that otherwise may have had to unfold.”
The Cenovus (NYSE:CVE) call is from an undervalued sector as well as an undervalued company.
“We think that the Canadian energy space is extremely well run for the most part, especially in the companies that we own of course, but from a valuation perspective is extremely inexpensive given the robust cash flows that we see and the extremely strong balance sheets.
It is amazing to me when I listen to the management teams of these companies, how they have learned their lesson from previous bubbles and how they are bound and determined to not repeat those mistakes no matter where the price of oil goes in the short term and how there is so much cash flow being returned to shareholders today either through dividends or buybacks that it is unbelievable.
And one of the companies that we think is a tremendous “pound the table” buy is Cenovus (NYSE:CVE).
Cenovus is an integrated oil and gas company.
They have properties in Canada, but they also own refineries in the U.S. and Canada.
And so they have both sides of the spectrum.
They may not have a lot of midstream assets, but they have the refining assets and they have the upstream assets.
And their upstream assets are, for the most part, very long-life assets because they’re oil sands.
And this is a company that also made a very big acquisition from ConocoPhillips about two years ago.
They took on a lot of debt, and they have been very rigorous and judicious about paying that debt down, about not extending themselves.
But now they’re in the catbird seat and in fact, if you look at the last presentation, by Q1 of 2024, they should be in a position to return between 75% and 100% of free cash flow to shareholders.
And that is just a monumental amount.
We’ve done some calculations, and if the price doesn’t move up, they will be able to buy back the whole company in four or five years, which is a pretty amazing thing when you think about that, because that also means that the free cash flow yield to the shareholder is extremely high right now.
I am very much in favor of ESG, but I don’t think that the world, as we know it today, and as we enjoy it today, can make this energy transformation in the next three to five years.
I am in the camp that it’s going to take a lot longer, and I believe that, unfortunately, individual and institutional investors alike have thrown out their energy securities way back when, never to return.
And these energy securities form a very small percentage of the S&P 500, a bigger percentage of the TSX for sure.
But from a valuation perspective and from a robustness perspective, I think the next three to five years could be extremely exciting because we have just not invested enough in new resources.
And while the demand for oil and gas may not be as robust as it once was in terms of net new demand, we also think that net new supply will not be so easy to come by.
And therefore, we are in the camp that the price of oil, and perhaps natural gas, will be much higher than it is today for longer, and that these organizations are going to tremendously benefit from these robust balance sheets, being able to shower their shareholders with lots of dividends and lots of share buybacks.”
Cenovus (NYSE:CVE) is not the only top pick from Mike Vinokur. Get all his top picks and more from reading the entire 4,212 word interview, exclusively in the Wall Street Transcript.
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