The Woodside Energy Group Ltd (ASX: WDS) share price has been in a downward trend since late 2023.
The selling pressure has largely been driven by declining oil prices.
In September 2023, Brent crude oil was trading for US$95 per barrel. As recently as 15 January this year, the oil price still stood at US$82 per barrel.
But with US President Donald Trump intent on bringing energy prices down, helping to spur OPEC+ to increase its production levels, and with global demand in question amid concerns of slowing national economies, Brent crude oil sank to US$60 per barrel on 5 May.
At market close on Thursday, Brent was trading for US$65 per barrel. Aside from the recent pullback, the last time we saw the oil price this low was back in August 2021 amid that year's ongoing pandemic border closures.
On Thursday, the Woodside share price closed down 1.33% at $21.46.
This sees shares in the S&P/ASX 200 Index (ASX: XJO) energy stock down 23% since this time last year.
Though those losses will be somewhat alleviated by the $1.87 a share in fully franked dividends Woodside paid out over the year. At yesterday's closing price, Woodside stock trades on a trailing dividend yield of 8.7%.
So, is the Woodside share price looking cheap?
Why this fund manager is bullish on the Woodside share price
Simon Mawhinney, chief investment officer at Allan Gray, believes that Woodside is currently materially undervalued (courtesy of The Australian Financial Review).
"They're the red-headed stepchild in the mix," Mawhinney jested. "And it is polluting the world that we live in, but we need them."
Among the reasons he said that the Woodside share price looks cheap today, Mawhinney pointed to the company's acquisition of BHP Group Ltd's (ASX: BHP) petroleum arm, BHP Petroleum International, in June 2022 in an all-stock merger.
He said that the accounting impacts of that acquisition via an all-share offer sees Woodside's earnings understated.
"If you buy something for scrip at a very high price, you end up depreciating that true income statement in subsequent years at an accelerated rate," Mawhinney said.
He also doesn't believe that global oil prices can remain this low over the longer term.
"In our view, US$65 a barrel is unsustainably low for most oil companies to continue producing," he said.
As for Woodside shares, Mawhinney said:
Earnings are low at US$65, and the price is cheap at US$65 a barrel and the current share price. So it feels like there's an asymmetric skew to the upside. That's one of the reasons it's our largest investment.
