Still at a discount to March’s high, Shell shares look cheap to me
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The stocks of Shell (LSE: SHEL) are currently being traded at a value almost 8% lower than their peak on 8th March this year. Considering the shifting conditions in the market and within the company itself, I believe that they appear to be a great deal at this particular price point.
Rising Oil And Gas Prices
Shell possesses one of the most exceptional in-house energy trading teams globally. Given their unsurpassed access to energy data, they are capable of generating substantial profits not only during the upswings but also during the downturns of energy prices.
Certainly, as per projections from the oil industry, the trading activities of the company accounted for approximately 20% of its total profits in the year 2022.
On the other hand, it is more lucrative to make profits when the prices of oil and gas increase. Typically, these prices rise in tandem, with approximately 70% of the gas price being influenced by the price of oil. Currently, oil prices have reached their highest point since 26 April, and the future looks very promising, with strong optimism in the market.
Supply And Demand Boosting Market
Saudi Arabia made a statement on June 4th regarding a reduction of 1 million barrels per day (bpd) in its oil production for July. This additional decrease in output adds to the previously implemented cuts of 3.66 million bpd by the OPEC+ oil alliance since October.
Oil prices are receiving a significant increase as a result of production cuts, and there is a possibility of further increases after the upcoming meeting of the OPEC+ monitoring committee, which is scheduled for 3 August.
In terms of the need for fuel, the largest global purchaser of oil - China - might soon increase their purchases of oil and gas. By committing to providing additional backing to stimulate growth on July 19th, China's National Development and Reform Commission has demonstrated their intention.
China's President Xi Jinping has placed his credibility on the line by aiming for economic expansion surpassing the official growth rate of 5% this year.
Refocus On The Basics
Considering these positive factors for oil and gas prices, Shell's renewed dedication to its fundamental operations is well-timed.
The CEO, Wael Sawan, also considers it essential to narrow down the difference in stock value between Shell and its American counterparts.
Based on the assessments made by analysts, Shell's share price is estimated to be about 3.4 times the projected cash flows for the year 2023. In comparison, US-based Chevron and Exxon are trading at approximately 7.1 and 7.5 times, respectively.
In defiance of Joe Biden's environmentally-conscious US Presidential Administration, these companies have stayed dedicated to their primary investments in oil and gas.
Sawan emphasized that Shell intends to maintain oil production at a steady rate of 1.4 million barrels per day until 2030. Additionally, they plan on expanding their extensive operations in the liquefied natural gas industry.
Regarding the environmentally friendly initiatives it had planned, the ones that succeed will be retained while those that fail will be divested, thereby cutting expenses as well.
Following its impressive performance in 2022, Shell decided to raise the dividend per share for the last quarter by 15% to 28.75 cents. As a result, the total annual dividend amounted to $1.04.
It additionally declared a repurchase of $4 billion in shares. An additional $4 billion in repurchases is scheduled to be finished by the time the Q2 outcomes are announced on 27th July. This will increase the overall amount returned to shareholders to approximately $12 billion for the first six months of this year.
In my opinion, the primary concern regarding the value of Shell's shares is the possibility that its operations could be restricted due to opposition from anti-oil advocates.
I currently possess shares in the company, and if I didn't, I would definitely invest in it at this moment. From my perspective, there's absolutely no doubt that it will recover all of its losses and even surpass them with significant gains. Moreover, the added benefits of receiving dividends and having opportunities for stock repurchases make holding this stock even more worthwhile.
The article, "Shell shares still appear inexpensive compared to their peak in March," can be found on The Motley Fool UK website.
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Simon Watkins holds shares in Shell Plc. The Motley Fool UK does not have any shares in the mentioned companies. The opinions expressed in this article about these companies are solely those of the author and might not align with the official recommendations provided in our subscription services like Share Advisor, Hidden Winners, and Pro. We, at The Motley Fool, believe that taking into account various perspectives helps us become smarter investors.
The Motley Fool UK in the year 2023.
