Should you buy Woodside Petroleum Limited now?

The energy giant is moving to become a bigger international player, but the stock may still be at bargain prices now.

| More on:

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Can the Australian energy giant transform itself into a bigger international player?

Well known for its LNG projects like Pluto and the North West Shelf offshore near WA, Woodside Petroleum Limited (ASX: WPL), the $34.7 billion oil and gas producer has had some recent setbacks, but they are the kind that Foolish investors with a long-term perspective look out for.

Would you rather buy a good company when the share price is very high and fully valued? This can reduce your potential return even if the stock goes up.

No, first we look for good growth and reasonable prices.

Yet when the market is uncertain or disappointed about even a quality company, traders soon fly off to some other "hot" stock and bargains can appear.

At around $42.20 a share, since the start of April four months ago it is up a little over 9% compared to the 2.6% gain of the S&P/ASX 200 Index (ASX: ^XJO). I believe there are three reasons why Woodside Petroleum could still be a buy.

1) New resource rich areas to expand into

It's now planning to begin exploration and development in Tanzania, Africa, after buying a 70% stake in a project with Beach Energy Limited (ASX: BPT) this month. On top of that, it is eyeing LNG growth happening around PNG. Santos Ltd (ASX: STO) and Oil Search Limited (ASX: OSH) are connected with the PNG LNG project, which has been producing this year. Earlier, Woodside had some informal talks with Oil Search, so it may be considering getting involved in the region.

2) Stable earnings producer

Investors know the company as a steady earnings and dividend generator and its fully franked 5.5% dividend yield is one great sign of that. Its LNG production is creating utility-like revenue that investors can rely upon in the coming years.

3) Shell selling down its Woodside stake

For many years, Royal Dutch Shell has been a major shareholder of Woodside and at one time even tried to take it over. Shell is now reducing its holding from 23% to just 4.5%. This move will give Woodside more control over its future growth. The company is also doing a selective share buyback of part of Shell's stake, which should benefit per share earnings and dividends. This comes at an opportune time when Woodside needs to expand to keep its development pipeline full over the next 5-10 years.

Motley Fool contributor Darryl Daté-Shappard does not own shares in any company mentioned. 

More on ⏸️ Investing

A white and black robot in the form of a human being stands in front of a green graphic holding a laptop and discussing robotics and automation ASX shares
Technology Shares

Joining the revolution: How I'd invest in ASX AI shares right now

Advances in artificial intelligence (AI) could usher in a new industrial revolution. Here’s how you can invest in it.

Read more »

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »