In the current circumstances, Woodside Energy Group Ltd (ASX: WDS) stock is becoming increasingly appealing.
I like exploring ASX shares that have fallen heavily because the market can become too negative. Sometimes, there's a turnaround opportunity.
But the Woodside share price is now so cheap that there may not need to be a large recovery of energy prices to do well out of this ASX energy share.
I didn't think I'd buy it before now, but after a large decline for this stock and a strong rally in other sectors, Woodside could be one of the leading choices to consider.
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Lower Woodside stock valuation
Let's look at the scale of the sell-off and how much cheaper it now is.
Since the start of 2024, the Woodside share price has fallen by 24%. From September 2023 to now, Woodside shares have declined by 37%.
Woodside's profit generation is not very consistent, but even with lower projected earnings, I think the company's price/earnings (P/E) ratio is compelling.
Using the earnings forecast on Commsec, the Woodside share price is valued at 10x FY25's estimated earnings
Large dividend returns
When a share price falls, it can push up the dividend yield.
Given such a hefty decline for Woodside stock, the dividend yield is now appealingly high.
According to the forecast on Commsec, the business is still expected to inflict dividend reductions on investors in the coming results, but the large share price decline has more than made up for this, which could give new investors large yields.
Using the projection on Commsec, Woodside could pay a fully franked dividend yield of 8.2% in FY25, which would be a grossed-up dividend yield of 11.7% (including franking credits).
The dividend payment alone could beat the ASX share market return in 2025.
Longer-term potential for a rebound
Woodside is working on several projects that could increase its earnings and cash flow in the future.
At the end of the quarter of the three months to September 2024, the company's Scarborough project was 73% complete and the Trion project was 15% complete. Woodside also recently completed its acquisitions of OCI's Clean Ammonia project in Texas and Tellurian with its US Gulf Coast Driftwood LNG development opportunity in October.
The addition of the earnings from these new projects could revitalise investors about the stock.
The world continues to need energy, and gas could play an important role for the foreseeable future. It wouldn't surprise me if energy prices rebounded if the global economy improved or if the situation in the Middle East worsened (and the energy supply was disrupted).
I wouldn't call Woodside stock a fantastic buy to hold forever, but I do believe it's an appealing option for contrarian investors. I'm considering adding it to my portfolio as a cyclical opportunity.
