With oil prices falling, many investors might be wondering whether it is worth holding on to ASX energy stocks like Woodside Energy Group Ltd (ASX: WDS). Woodside shares have had a horrid 2024 to date, plunging more than 20%.
If you still own Woodside shares, you might want to hear what an ASX expert has to say about this oil stock.
ASX fund manager Blackmore Capital has just released a portfolio update that reveals some interesting insights into Woodside.
To sum it up, Blackmore has recently exited its position in Woodside shares. Rather than a falling oil price, the fund manager cited "concerns over its recent acquisitions and capital allocation strategy" as its primary reason for hitting the sell button.
Blackmore points to both the Driftwood LNG project and the Clean Ammonia Project as the investments that it finds bothersome:
While these acquisitions could diversify WDS's portfolio, they appear more dilutive than accretive on a return on capital employed (ROCE) basis. The Driftwood LNG project, for example, has a projected internal rate of return (IRR) of only 12% and is several years away from generating cash flows.
Blackmore also argues that Woodside's "production growth outlook remains limited over the next five years, with CY24 guidance flat at 189-195 MMboe, indicating minimal growth from its existing portfolio".
The fund manager flames "major projects like Scarborough and Sangomar, which are still ramping up and face significant geopolitical risks".
Finally, Blackmore identifies Woodside's debt, high capital expenditures and high dividend payout ratio as additional reasons it is heading for the exit.
What is this ASX expert buying instead of Woodside shares?
In Woodside shares' place, Blackmore has told investors it is investing in three other ASX shares.
First up is real estate investment trust (REIT) Goodman Group (ASX: GMG).
The fund manager was impressed with Goodman's full-year results for FY2024. It has increased its position following a recent share price pullback.
Looking forward, Blackmore is bullish on Goodman's exposure to data centres in particular. The fundie argues that this "positions the company well for sustained long-term growth".
Next, Blackmore pointed to Origin Energy Ltd (ASX: ORG) as a replacement investment for Woodside shares.
Again, it was Origin's most recent earnings report that convinced the fund manager to increase its stake. Blackmore was impressed by Origin's 58% rise in net profits that it reported for FY2024.
It is anticipating that Origin is "positioned to benefit from the structural shift towards electrification and decarbonization within the National Electricity Market (NEM)". The company's "strong balance sheet and robust cash flow profile" were also factors.
Finally, Blackmore is "topping up" its stake in Macquarie Technology Group Ltd (ASX: MAQ), in large part due to a recent drop in share price. The fund manager identifies Macquarie as a compelling benefactor of continuing demand for cloud-based services, pointing to its "10th consecutive year of EBITDA growth" in 2024.
Thanks to a strong balance sheet and high cash flow conversion rate, Blackmore thinks that this company is a better place to have its funds than Woodside shares right now.
