ProPicks: 3 Oil Stocks to Buy on the Dip

Top investing ideas from Cole Smead of Smead Capital Management

Pro Picks: Why this US Investor Thinks Now is the Time to Buy Canadian Energy

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Cole Smead of Smead Capital Management says this is one of the best times in 20 years to buy Canadian energy stocks. As a U.S.-based investor, he sees significant upside in the sector, pointing to supply constraints, capital discipline, and strong cash flow generation. Here are his top three picks and why he likes them:

Strathcona Resources – A Hidden Giant Ready to Acquire

Currently trading in the mid-20s after hitting a one-year low, Strathcona Resources is one of Canada’s largest producers, yet its limited float keeps it under the radar. Cole’s betting on its long-term value and strategic moves.

• Elite Backing: Controlled by the Waterous family—whom Cole calls Canada’s best energy capital allocators—Strathcona boasts an investment-grade balance sheet and disciplined management.

• Liquidity Discount: With only 20% of shares in public hands (up from 9%), long-term holders like Prem Watsa squeeze liquidity, masking its true worth as a top-tier producer.

• Acquisition Upside: Cole sees Strathcona as a platform for all-share acquisitions when its stock price rises, unlocking value through deal-making over the next two years.

• Upside Potential: As liquidity improves and acquisitions kick in, Cole expects the stock to reflect its high-quality, long-lived assets—potentially doubling from current levels if market recognition catches up.

MEG Energy – A Takeout Target with Tax Advantages

Bouncing off a two-year low, MEG Energy’s single-asset focus and undervaluation make it a standout. Cole highlights its hidden value and M&A appeal as key drivers.

• Tax-Free Profits: MEG’s net operating losses (NOLs) act as deferred tax assets, letting it rake in profits without cash taxes—value Cole expects to unlock over five years or faster via a buyout.

• High Returns, Low Price: Trading near book value with mid-teens returns on invested capital, it’s a steal for its steady, long-life oil sands asset.

• M&A Magnet: A “banker’s dream,” MEG could fetch a premium in an all-share takeover, with acquirers funding it through accelerated NOLs—a classic value play.

• Upside Potential: Whether through organic NOL recognition or a takeover, Cole sees MEG climbing significantly, with a premium potentially pushing it 30-50% higher in a deal.

Cenovus Energy – Mispriced Assets with Refinery Kicker

Near a three-year low after a February earnings miss, Cenovus Energy offers durable assets at a bargain. Cole’s conviction lies in its overlooked value and strategic options.

• Long-Life Tar Sands: With mid-teens returns on invested capital and a 1.5x book valuation, its tar sands production promises steady cash flows for decades—unlike short-life U.S. Permian assets.

• Refinery Overhang: The market assigns zero or negative value to its refineries (20% of production), but selling or spinning them off could unlock hidden worth.

• Historical Edge: Past writedowns inflate returns by undervaluing assets under IFRS, making Cenovus a contrarian buy at the cycle’s low.

• Upside Potential: Recognizing refinery value or sustaining high returns could lift Cenovus 50% or more, especially if oil prices rebound or a spinoff succeeds.

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DISCLAIMERS: The information provided in this podcast is for informational purposes only and does not constitute financial, investment, or professional advice. The views expressed by the host and guests are their own and do not necessarily reflect the opinions of any organization or company. The host and guests may maintain positions in any securities discussed on the podcast. Always consult with a qualified financial advisor or professional before making any investment decisions.