Should you buy Woodside Petroleum Limited now?

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.

An even better alternative

I believe Woodside still holds value compared to the potential growth it could have in the near term. Also, because the total picture isn't clear to the market, Foolish investors can start or add to a position while prices are relatively cheap until the company shows all its moves. That's routine for long-term investments.

Whether you ultimately add Woodside to your portfolio or not, before you make a decision I suggest you also consider this stock, as it could very well be the 'story stock' of 2014! Get The Motley Fool's #1 pick now in our newly updated investment report. It's yours FREE. Simply click here for your copy of "The Motley Fool's Top Stock for 2014."

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

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