Oil stocks
Hi guys, would love your updated views on some of the oil stocks like KAR and WDS. They've been in decline all of 2024, are they getting into the buy zone/bottoming out do you think?
The Latest Q&A
Answer
Hi Josh,
With President Trump keen to get the oil price lower we believe its a year to be fussy when picking the bottom in oil, and related stocks. Also, the incoming president appears keen to orchestrate the end of the Ukraine – Russia conflict; an important factor for the supply side of the equation with Russia accounting for approximately 12-13% of global oil production before the war. Arguably the only significant tailwind for the sector this year could come from a pick-up in economic activity from China and there are a number of alternative contenders for ways to play this contrarian trade.
Hence, we have to consider how WDS is currently trading compared to history, i.e. how much bad news is already built into its price. A quick glance at the chart below shows that WDS is dancing almost in perfect harmony with Brent Crude hence for the oil producer to advance meaningfully without an oil price tailwind is unlikely, i.e. the stock price looks about right.
A number of investors have been considering WDS as a yield play as its forecasted to pay a 60c fully franked dividend in February; however, with large CAPEX bills on the horizon, the yield will likely fall from currently lofty levels above 7% toward 5% by 2026 – its not for us at this stage of the global economic cycle.
- MM is unlikely to consider WDS without a fresh bullish catalyst.
Karoon (KAR) actually looks more interesting at current levels, and we covered it here this week.
chart
Woodside Energy Group Ltd (WDS) v Brent Crude ($US/barrel)
chart
Woodside Energy Group Ltd (WDS) v Brent Crude ($US/barrel)
