Dips n Peaks

You know a winning strategy for the past 18 months would’ve been to be overweight WDS with a core holding (banking the handsome dividends) and on top of that buying the low $30’s dips and selling the high $30’s peaks. Easy to say now I know ….but while I haven’t quite pulled that off to the letter I’m somewhere close….my confidence in the stock from a global/macroeconomic point of view hasn’t really wavered…..it’s the domestic labor/green interference that continues to be the main concern.

With WDS again dipping to the low $30’s is it time to buy?

The overall thesis for owning it hasn’t changed all year in my view. As the western world tries desperately (and hurriedly) to wind back its reliance on fossil fuels, renewables are coming up short again and again. Governments are finally realising this has to be a slower transition than their green advisors have previously suggested (not the strong suit of these simple minded green folk is the macroeconomic and financial realities of such a transition) The UK PM’s recent granting of over 100 drilling licences in the North Sea is a case in point. The argument that fossil fuel will be burnt at current levels at least for another decade or two is stronger than ever.

So I’m confident in WDS as a medium to long term investment. That said, you can’t control what the oil traders do from day to day and week to week – they have different aims and agenda’s…..and they certainly impact on the stock price. All year when the traders get active selling Brent you’ll see WDS take a hit. In March it dipped to $33 – good buying. Not so long ago after sustained buying by the oil traders WDS hit $39 – a point at which, in hindsight Brent was due for a breather given it was a traders rally ….ie the worldwide macro picture wasn’t really supporting it.

My positive view around the stock at this price is based on a number of things:

1. Threatening to dip towards the lower end of the low $30’s to high $30’s range it has mostly traded in for 18 months

2. OPEC pull their production levers and put a floor under the price of Brent whenever it gets below US$80 (and especially US$70)

3. the macro picture across the world is still pretty bleak. Demand for oil could be a lot higher. If the big economies get going in 2024 and 2025 keeping oil under US$100 could prove a real challenge and a WDS share price north of $40 would be a near certainty

4. The demand/supply imbalance will continue due to the renewables obsession

5. The weak and weakening $A only enhances our returns in $A

6. There just isn’t much out there that can compete with WDS’s potential return on investment given we now have a potential capital gain (ie I’m sure we’ll see high $30’s again before long) as well as what looks like a pretty safe $2.50 plus annual dividend return for years to come.

At Friday’s close of $34.19 it’s very close to top up time for me. Sub $33 would do it. A strong hold for now.