Cenovus Vitality (TSX:CVE) was one of many greatest Toronto Inventory Alternate (TSX) winners in 2022. Rising 51% for the 12 months, it simply outperformed the TSX composite index. The truth is, it even outperformed TSX vitality shares, which had been among the many 12 months’s greatest gainers.

So, CVE inventory has put an ideal run behind it. The query is, can it maintain its win streak alive in 2023? This 12 months, vitality costs are nowhere close to the extent they had been at in early 2022. The Ukraine struggle triggered mass panic about oil provides, resulting in traders bidding up the value of oil within the futures market. In consequence, oil firms like Cenovus piled up windfall earnings. As we speak, the oil firms not have the $123 oil tailwind to push them ahead to straightforward victory. Nonetheless, they (together with Cenovus) have quite a lot of long-term benefits that might repay sooner or later.

On this article, I’ll discover the long-term benefits CVE inventory enjoys that might make its inventory price proudly owning in 2023.

Causes for optimism

By far the largest purpose for being optimistic towards CVE is the truth that the corporate paid off plenty of debt final 12 months. Between the third quarter of 2021 and the third quarter of 2022, CVE paid off $5.7 billion price of debt. This debt reimbursement will increase earnings sooner or later. Debt creates curiosity expense — a price that must be cleared earlier than an organization can flip a revenue. While you repay debt, your curiosity expense goes down. After paying off $5.7 billion in debt, CVE seemingly will report greater earnings in comparison with what it could have had the debt not been repaid.

Another excuse for optimism towards CVE inventory is the truth that oil costs will seemingly be not less than reasonably robust within the 12 months forward. China is re-opening, which is able to improve demand for oil, and OPEC is chopping output, which is able to scale back the availability. Excessive demand and low provide have a tendency to provide greater costs, and we’re seeing proof that the oil market will probably be robust within the 12 months forward. I don’t assume we’re headed again to $120 or something like that, however costs close to at this time’s ranges must be simply maintained.

Dangers to be careful for

Though Cenovus Vitality has many issues going for it, it’s uncovered to many dangers as effectively. Among the most notable embrace the next:

• ESG points. ESG is an acronym (environmental, social, and governance) that principally refers to moral investing. Many traders in ESG funds choose to keep away from oil shares as a result of their high-carbon footprints. This didn’t cease oil shares from rallying final 12 months, however, over the long term, it most likely holds returns again barely in comparison with what they could possibly be.
• Decrease oil costs. As talked about beforehand, there may be purpose to assume that oil costs will keep excessive this 12 months. Nonetheless, they may simply fall. If OPEC made a shock output hike, or if China locked down once more, then oil costs would go decrease. These dangers are fairly distant, however they’re price preserving behind your thoughts.

The dangers above are actual. On the entire, although, CVE appears to be like set for one more good 12 months in 2023. Because it’s low-cost, worthwhile, and rising, it’s received so much to like.