The next directional move in Woodside shares hinge on the direction in and or a combination of the Japan/Korea LNG Marker, the U.S. Natural Gas price, the West Texas Intermediate (WTI) Crude Oil prices along with the AUD/USD.
The charts below show the various correlations between Woodside shares and those assets.
My analysis of Woodside shares suggests that has a further 15% downside risk to $28, which is where I will be a buyer.
I may perform this exercise across other energy related equities.
JKM LNG Marker (in blue) versus WoodsideHenry Hub Natural Gas (in blue) versus WoodsideWTI Crude Oil (in blue) versus Woodside AUD/USD (in blue) versus Woodside
I have been negative on Big Oil but there have been some monumental moves lately. Some stocks are trading at “monthly” oversold levels not seen the 1960’s.
At $33, my calculations tell me you can Buy Exxon Mobil at its intrinsic value.
So this example turns XOM into a bond and still have some optionality.
Buy stock at $33 and Buy January 2023 $30 strike Put option for $6.50.
Dividends are slated to be 87 cents per quarter. You’ll earn $7.83 over 9 quarterly dividends.
And the difference paid between your put option insurance and dividends earned is $1.33 or equivalent to 4% of the price paid for the stock today.
Over the next 2 1/4 years, this cash difference easily beats (even if it’s taxed) the 0.35% yield on the 5 year U.S. Government Treasury bond.
And the optionality is limitless, ranging from whether the oil price rises to $70, XOM returning to the Dow Jones Industrial Average or improving free cash flow, margins and EBITDA from a low base.
With a market cap of $145 billion (net debt of $57 bn) thus an Enterprise Value of $202 bn on 2019 revenues of $214 bn (2020 likely to be $185 bn) and EBITDA of $30 bn.
rob zdravevski's blog 