I've considered an investment in many ASX 200 shares. Only a few have ever made the cut as members of my investment portfolio. But one popular ASX stock has never even got close to the entryway. That would be Woodside Energy Group Ltd (ASX: WDS) shares.
This ASX 200 energy stock is one of the largest shares in the S&P/ASX 200 Index (ASX: XJO) – number 12 at present, to be exact. Many investors buy Woodside for its large portfolio of oil and gas assets, which spans from Australia to North America. Many more are attracted to this stock's fully franked 6.8% dividend yield.
On paper, there are many things to like about Woodside shares. But I've never owned this stock, and I probably never will. There are two reasons why.
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Two reasons I will never buy Woodside shares
No moat, no advantage
Woodside shares are cursed with the same affliction that all mining and drilling shares are. They are always at the mercy of a capricious and volatile market, which they have almost no influence over.
Most companies produce a good or service that they can sell at a determined price. Now, the invisible hand of the market always puts constraints on the price, of course. But the best companies tend to have some level of discretion over what they charge. There's a reason why Apple, for example, enjoys some of the best margins around. People are simply willing to pay what the company asks for its products due to strong brand loyalty. It can afford to decide its own prices.
But Woodside can only ever sell its oil and gas at whatever the current market rate is. A barrel of Woodside's oil is no better or worse than a barrel of anyone else's. As such, the company has no moat, no competitive advantage it can leverage to the benefit of its investors. It can make hay while the sun of high oil prices is shining, of course. But when prices go through the floor, as they do every so often, there is nothing Wooside can do to stop its profits from eroding.
As such, Woodside's profits, and thus dividends, are highly cyclical, and thus difficult to compound over long periods of time.
Woodside shares: A poor history of capital management
It's for the reason above that I tend to avoid most commodity-based stocks. But Woodside has a particularly poor performance track record amongst its peers.
Many oil companies manage the ups and downs of their sector with reasonable success. I would argue Wodoside is not one of those companies. Take a high-quality energy stock like the American giant Chevron Corp. Chevron shares bounce around from year to year. But the trajectory has always been slowly upwards. The Chevron stock price's latest all-time high came back in late 2022, when oil prices were still at elevated levels following the Russian invasion of Ukraine.
But Woodside's? That was way back in May 2008. Yep, Woodside shares hit just over $61 a share back then, and have never even come close since. An investor who bought this company at that time would still be down 60% as it currently stands. Sure, there have been ups and downs since. But the downs have come far more frequently than the ups.
As it stands today, Woodside shares are up just 4.06% over the past five years, and up 3.5% over the past 12 months. Investors would have been far better off owning a simple ASX 200 index fund over both periods (and most others).
This arguably shows a poor capital management track record from the company.
Foolish Takeaway
I don't have anything against Woodside as a business. But there is simply nothing in its past or present that indicates to me that it will be a market-beating investment in the future. Some corners of the economy are simply easier to make money in than others. I tend to try and stick to the easier ones.
