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Written by Amy Legate-Wolfe at The Motley Fool Canada
Motley Fool investors have been eyeing the energy industry lately with both wariness and interest. Inflation and interest rates weigh on investors, as they look at the price at the tank rise higher and higher. But there’s certainly a way to get in on that action. In fact, there’s one energy stock that could see your shares double while other energy stocks remain behind.
An acquisition at the right time
Even before the pandemic, a market crash was likely. And that’s why energy companies making investments or acquisitions wasn’t exactly thrilling. In fact, shares of companies across the board all but collapsed during the production glut of 2018 that leaked into 2019.
But one energy stock that refused to let that stop it was Cenovus Energy (TSX:CVE)(NYSE:CVE). The company purchased Husky Energy not just during the pandemic but at the height of it almost exactly a year ago. By early 2021, the merger was complete, with Cenovus stock boasting synergies of $1.2 billion within the next year.
It all looked like a poorly timed move. Cenovus stock was an energy stock not exactly doing that great, with shares trading not far off where they were during the March 2020 crash. By March, shares were up 50% but still far away from pre-2018 levels.
So, why buy this energy stock today?
Predictions were correct
Cenovus stock managed to come through with its predictions. During the last earnings report, the company reported cash from operations of $1.4 billion, adjusted funds of $1.8 billion, and free funds flow of $1.3 billion. It, in fact, increased production guidance by 2% for 2021 and was on track for the $1.2 billion in synergies. It also expects net debt of $10 billion by the end of 2021.
Analysts believe all of this should come to fruition in the next report. In fact, the energy stock is already outperforming other energy stocks, and that looks like it will continue. From a company making a potentially poor investment choice, it now looks to be moving from repair to cash-return mode. In 2022, shares should offer significant value, especially as the oil outlook improves.
As of writing, shares trade at $14.30. Analysts now give the stock a potential upside of 24% in the next year, but many have started adjusting their targets. In fact, it’s not unheard of for some to believe the stock could double back to post-2018 levels in the mid-$20 range, doubling the stock.
And given that Cenovus stock is up 196% in the last year, this doesn’t look too far gone.
While we don’t know the earnings date for Cenovus stock quite yet, investors should watch this energy stock closely on that date. In fact, it might not be a bad idea to even start up a small stake. Shares are up climbing higher, as the acquisition of Husky is clearly going smoothly. Cenovus stock currently holds a position in the top three energy stock producers in the country. Given that it’s growing as others continue to shrink, the top positions may open up very soon.
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Fool contributor Amy Legate-Wolfe has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.