Are Woodside shares the number one pick in the energy sector?

One leading broker thinks that the energy giant is the best option for investors right now.

| More on:
An oil worker in front of a pumpjack using a tablet PC.

Image source: Getty Images

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

Woodside Energy Group Ltd (ASX: WDS) shares are having a good start to the week.

At the time of writing, the ASX 200 energy stock is up 1.5% to $25.42.

While this gain is positive, it pales in comparison to what might lie ahead for its shares according to one leading broker.

Woodside shares tipped to rise

According to a recent note out of Morgans, its analysts think that Woodside is the best ASX 200 energy stock to buy right now.

In order of preference, the broker rates Woodside first, Karoon Energy Ltd (ASX: KAR) second, Beach Energy Ltd (ASX: BPT) third, and Santos Ltd (ASX: STO) fourth.

The broker currently has an add rating and $33.00 price target on Woodside's shares. Based on its latest share price, this implies potential upside of 30% for investors over the next 12 months.

To put that into context, a $5,000 investment would turn into approximately $6,500 by this time next year if Morgans is on the money with its recommendation.

Commenting on the sector, the broker recently said:

Oil demand is tracking modestly ahead of expectations, while robust supply is failing to keep pace. We expect the oil market to enter a deficit supply balance during 2H 2024. The oil market may be pricing in some demand destruction, but if that does not materialise, we expect Brent oil to recover to >$80/bbl in the next 1-3 months. Forced ranking of our oil-exposed coverage at current share prices: #1 WDS, #2 KAR, #3 BPT, and #4 STO.

Why Woodside?

Morgans believes that Woodside shares offer attractive long-term value for patient investors. Particularly given how the market appears to be undervaluing them at present. It said:

The tide is certainly out in terms of investor sentiment on WDS. Despite Brent oil trading in line with our long-term forecast, WDS' share price implies a near cycle-low oil price level. We do not see this as capable of being explained by WDS' growth profile (comfortably funded) or risks around non-core assets such as Browse.

While the share price performance has been disappointing, supported by a strong balance sheet and high margins, we see WDS investors as capable of being patient. Investment view: We maintain an ADD recommendation believing WDS offers attractive long-term value.

It is also worth noting that Morgans expects some good dividend yields from the energy giant in the near term.

It is forecasting fully franked dividends of approximately $1.83 per share in FY 2024 and then $1.52 per share in FY 2025. This equates to yields of 7.2% and 6%, respectively.

Motley Fool contributor James Mickleboro has positions in Woodside Energy Group. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Energy Shares

Happy coal miner.
Share Gainers

Up 75% this week, why is this ASX All Ords stock rocketing again today?

Investors are piling into this ASX 300 stock on Wednesday. But why?

Read more »

Man pointing at a blue rising share price graph.
Share Gainers

Guess which ASX 300 stock just rocketed 43% on big news!

Investors are piling into this ASX 300 stock on Wednesday. But why?

Read more »

A male oil and gas mechanic wearing a white hardhat walks along a steel platform above a series of gas pipes in a gas plant
Energy Shares

4 reasons to buy Santos shares right now

A leading expert forecasts Santos shares and dividends are set to grow. But why?

Read more »

Man with rocket wings which have flames coming out of them.
Share Gainers

Guess which ASX 200 stock has rocketed 86% since April?

This sky rocketing ASX 200 stock continues to defy short sellers. But how?

Read more »

A miner in visibility gear and hard hat looks seriously at an iPad device in a field where oil mining equipment is visible in the background.
Energy Shares

4 ASX 200 energy shares making big moves today as OPEC's oil production set to surge

ASX energy shares, including Woodside and Santos, are making big moves today. But not all in the same direction.

Read more »

Worker on a laptop at an oil and gas pipeline.
Energy Shares

Woodside share price charging higher on North West Shelf approval

Woodside has been working more than six years to gain an extension for its North West Shelf gas project.

Read more »

Gas and oil plant with a inspector in the background.
Energy Shares

Does Macquarie rate Origin Energy shares a buy, hold or sell?

The broker has given its verdict on the energy giant. Let's see what it is saying.

Read more »

An oil worker in front of a pumpjack using a tablet PC.
Energy Shares

Ord Minnett tips Woodside shares to rise 15%+

Market-beating returns could be on offer from this energy giant.

Read more »